Pay-As-You-Go Pricing: Best Practices for Cost Control

Pay-as-you-go (PAYG) pricing offers flexibility by charging businesses only for the cloud resources they use. But without proper management, costs can quickly escalate due to unexpected spikes, idle resources, or inefficient configurations. To prevent overspending and maximise your cloud investment, here’s what you need to focus on:

• Monitor usage in real time: Use tools like AWS Cost Explorer or Datadog for detailed cost tracking and optimisation.
• Set budgets and alerts: Define service/project budgets in GBP and implement automated spending alerts to catch anomalies early.
• Optimise resources: Regularly right-size resources, remove idle assets, and consider cost-saving options like serverless computing or spot instances.
• Tag resources: Consistent tagging helps track costs by team, project, or department for better allocation.
• Review regularly: Conduct quarterly audits and involve cross-functional teams to align spending with business priorities.

AWS re:Invent 2022 - Cloud cost optimization: Only paying for what you need (COP207)

Monitor Usage and Track Costs

Keeping cloud costs under control starts with having a clear, real-time view of your spending habits. Without this visibility, up to 32% of cloud budgets can go to waste. In fact, 94% of IT teams report climbing storage costs, while 54% say these expenses are increasing faster than overall cloud costs [1][2].

The key to avoiding such pitfalls is to implement monitoring systems that offer real-time insights into your usage and spending trends. These tools aren't just about crunching numbers - they help you make smarter decisions, avoid unexpected costs, and get the most out of your cloud investments. With this clarity, you're better equipped to choose the right monitoring tools for your needs.

Use Cloud-Native and Third-Party Monitoring Tools

To keep costs in check, selecting the right monitoring tools is essential. You have two main options: cloud-native tools and third-party solutions, each offering its own benefits.

Cloud-native tools like AWS Cost Explorer, Azure Cost Management + Billing, and Google Cloud Platform's cost monitoring are built right into their respective platforms. For example, Azure Cost Management provides tailored cost-saving advice through its advisors [2]. These tools are great for basic cost visibility and are often included in your cloud service package.

Third-party tools, on the other hand, often offer more advanced features. Datadog, for instance, provides a robust multi-cloud cost monitoring solution, while Cast AI delivers detailed insights, and CloudZero goes beyond basic figures with per-unit cost analysis [1][2].

Best practices are important, but there's no substitution for real measurement and cost optimization. Datadog Cloud Cost Management helped us attribute spend at a granular level over dozens of accounts to achieve significant savings. - Martin Amps, Stitch Fix [3]

When evaluating tools, look for features like cost visibility, allocation and tagging, optimisation recommendations, real-time alerts, and multi-cloud integration [1]. Don’t forget to factor in the total cost of ownership, including subscription fees, implementation, training, and ongoing maintenance [1].

Create Dashboards for Usage and Cost Trends

Dashboards are a powerful way to keep tabs on cloud costs, bringing together data from multiple sources into one easy-to-read interface. Without dashboards, you risk being blindsided by unexpected cost spikes.

These dashboards make complex cloud cost data more digestible and actionable. By using visual elements like charts, graphs, and heat maps, you can quickly identify trends and spot anomalies in your spending [5][6].

To maximise their effectiveness, design your dashboards to align with the FinOps lifecycle - Inform, Optimise, and Operate. Include interactive features such as filtering, sorting, and drill-downs to connect spending directly to business value [6].

Customisation is key. Tailor dashboards to display metrics that matter most to your organisation. For example, role-based access controls and custom views can ensure that different teams see the data most relevant to their needs. Tools like CloudZero’s AWS EC2 Usage dashboard or Google Cloud Platform’s FinOps Hub offer great examples of how to visualise cloud costs effectively [5].

Tag Resources for Detailed Cost Tracking

Resource tagging is a game-changer when it comes to tracking cloud expenses. By tagging resources consistently, you can break down vague costs and allocate them accurately across teams, projects, or departments [4].

A standardised tagging framework should cover areas like projects, departments, environments, cost centres, and resource owners. This approach allows you to answer questions such as how much a specific team’s development environment costs each month or which project is driving up storage expenses.

Tagging also reveals usage patterns, helping you identify underutilised resources and make better decisions about allocation. However, tagging isn’t a one-and-done task - it’s an ongoing process. Establish governance policies to ensure new resources are tagged correctly, and regularly audit existing tags for compliance. Automated tagging policies can further ease the workload by applying standard tags automatically based on the context of resource creation.

It's not about tradeoffs between cost and performance: cost is a need, just as important as scalability and security. CCM has empowered engineers in our organization to understand this and act on cost data in the same way they would on performance, to maintain efficiency as we scale. - Tim Ewald, CTO, Kevel [3]

When combined with effective monitoring and dashboards, consistent tagging practices provide the insights needed for proactive and efficient cloud cost management.

Set Budgets and Control Costs

Managing your budget is key to avoiding PAYG overspend. By strategically allocating funds to meet actual needs, you can maintain control over costs. Proactive budgeting is essential - it helps you spot potential overspending early, complementing usage monitoring to ensure comprehensive cost management.

Define Budgets in GBP for Services and Projects

Break down your cloud budget into allocations for specific services and projects. For services like compute, storage, and networking, set monthly budgets in GBP. This ensures you’re tracking costs in a way that aligns with your financial goals.

For projects, assign dedicated budgets from development through to production. For larger initiatives, consider quarterly budgets to give teams some flexibility while maintaining oversight. Work closely with teams to align budgets with the organisation’s priorities.

Don’t forget to factor in seasonal changes and growth expectations. For example, if you expect a spike in user traffic during specific periods, adjust your budget to account for the additional infrastructure costs.

Implement Automated Budget Controls

Automating budget controls can help you manage spending in real time.

Hard and soft limits are fundamental to this approach. Soft limits, for instance, can trigger alerts when you’ve used 80% of your budget, allowing teams to review and adjust their usage. Hard limits at 100% prevent further resource provisioning altogether [8].

Policy-based controls offer another layer of security. These policies can block unauthorised provisioning of expensive resources. For example, you might require managerial approval for launching large instances or restrict resource deployment in high-cost regions unless explicitly approved.

Budget APIs can automate the creation and management of budgets [9]. Additionally, action groups can trigger responses when spending hits certain thresholds. These responses could include sending alerts, opening support tickets, or scaling down non-essential resources to curb costs [9].

The key is balance. Overly strict policies can hinder productivity, while overly lenient ones may fail to prevent overspending. Start with conservative limits and tweak them as you gather data on usage patterns.

Review and Adjust Budgets Regularly

Automated controls are only effective if reviewed periodically. Conduct monthly reviews with relevant teams to adjust budgets based on past spending trends and future needs. Look at both overspending and consistent underspending to fine-tune your approach.

For example, if your team consistently needs more compute power during peak periods, use that data to adjust future budgets. Regular audits ensure every pound is accounted for, services are optimised, and decisions are backed by data [7]. These audits should also evaluate how well budget controls are working and whether forecasts are accurate.

It’s also worth holding quarterly budget planning sessions. These sessions let teams request adjustments for upcoming projects or changing demands, helping you avoid last-minute budget increases and maintain financial discipline across the organisation.

Configure Cost Alerts and Detect Spending Issues

Cost alerts serve as an early warning system for unexpected spending increases, complementing budgets by addressing problems as they arise. The key is to adopt a multi-layered approach that combines real-time notifications with advanced anomaly detection. This strategy builds on traditional monitoring by offering immediate insights into potential overspending.

Set Up Real-Time Spending Alerts

Real-time alerts should be designed to trigger at various spending thresholds, providing a step-by-step warning system to prevent budget overruns. By setting multiple thresholds, you can create a graduated response plan. For instance:

• Daily alerts: Useful for identifying gradual increases in spending.
• Hourly alerts: Ideal for services that can scale quickly, like compute-heavy workloads or data processing tasks.

Customise these thresholds based on each service's usage patterns, and adjust them for predictable seasonal spikes to avoid unnecessary alerts. This way, you can maintain accuracy and reduce false alarms during peak periods.

Use Anomaly Detection Tools

Anomaly detection tools, such as Google Cloud's Cost Anomaly Detection, can monitor spending patterns on an hourly basis and flag deviations from historical trends. These systems use artificial intelligence to analyse past spending behaviour, helping to identify unusual activity that could signal misconfigured resources or inefficient deployments.

Google Cloud's Cost Anomaly Detection, introduced in public preview in October 2024, is a good example. It tracks hourly spending and detects unexpected spikes within 24 hours [10]. The system allows customisation of thresholds and provides root cause analysis to help teams take corrective action [10].

Anomalies in the context of FinOps are unpredicted variations (resulting in increases) in cloud spending that are larger than would be expected given historical spending patterns. – FinOps Foundation [11]

Effective anomaly detection systems let you customise alerts to focus on issues with significant cost impacts, ensuring you only get notified about relevant anomalies [10]. They also offer root cause analysis, making it easier to pinpoint which resources are driving the increase and enabling faster resolution. Over time, these tools improve as you provide feedback, marking anomalies as genuine or false positives, which helps the AI refine its accuracy and reduce unnecessary alerts [10]. Additionally, priority tagging (e.g., low, medium, high, critical) ensures your team can focus on the most pressing issues first [11].

Connect Alerts to Communication Channels

To ensure timely responses, route cost alerts to the appropriate team members via effective communication channels. For general updates and non-urgent alerts, email works well. However, for immediate action, direct communication platforms like Slack or Microsoft Teams are more effective. These platforms enable real-time collaboration, making it easier for teams to discuss and resolve issues.

If you're using Google Cloud, you can leverage Pub/Sub to forward budget alerts directly to your preferred communication tools [12]. For tracking and managing cost anomalies, integrating with Jira can be particularly useful. When an alert is triggered, the system can automatically create a ticket, include relevant spending details, assign it to the correct team, and track progress until resolution [13].

To handle critical alerts effectively, establish escalation paths. For example, if an alert remains unacknowledged, notify senior team members or management. Use instant messaging or app notifications for high-priority alerts, while reserving email for less urgent updates. This approach helps balance the need for quick action with the risk of alert fatigue.

Optimise Resources and Reduce Waste

Once you've established monitoring and budgeting strategies, the next step is to focus on optimising resources. This is essential for keeping costs under control in pay-as-you-go (PAYG) environments. By cutting waste and maintaining strong performance, you can achieve a more efficient and cost-effective operation. Let’s dive into the key steps.

Right-Size Resources Regularly

Right-sizing means adjusting your cloud resources - like CPU, memory, and network throughput - to match your actual workload needs. This process should be done regularly to ensure you're not overpaying for unused capacity [14][16].

Start by analysing resources that have been active for at least half of your monitoring period. This ensures you’re working with reliable data [14]. Pay attention to instances with minimal Reserved Instance coverage and exclude those that were switched off during the analysis. This can help you identify immediate savings opportunities [14]. Set a savings threshold to prioritise which resources to adjust and monitor peak usage metrics to ensure performance isn’t affected by switching to a less expensive instance type [14].

Before making changes, it’s important to consult with resource owners to avoid disruptions to applications [16]. Establish a communication process within your FinOps team to review recommendations regularly. Also, include a performance testing phase to confirm that applications continue to run smoothly after adjustments [16]. For Azure users, tools like Azure Advisor can identify underutilised resources, while Azure Budgets and Alerts provide additional cost management support. Tagging resources clearly can further improve decision-making [15].

Remove Idle and Underused Resources

Idle resources are a common source of unnecessary spending. These are assets that continue to rack up charges without delivering any business value [17].

Idle resources drain your budget without adding value. Therefore, eliminating or repurposing these resources can cut costs dramatically. – Steven Moore, FinOps Specialist [17]

Look for idle items like unused storage volumes or development instances that are still running. Eliminating these can reduce costs by as much as 30% [17]. Use tools like AWS Cost Explorer, Trusted Advisor, and CloudWatch to gain insights into spending patterns and locate underutilised resources [17][19]. Depending on your needs, you can either manually terminate irregular usage patterns or automate the process for more predictable idle periods [18]. Automation tools like AWS Lambda can streamline this, saving time and ensuring continuous oversight [17][18].

Use Serverless and Spot Instances

Building on the steps above, serverless computing and spot instances present excellent opportunities for cutting costs when used for the right workloads.

Serverless architectures charge only for the compute time and resources you actually use, making them perfect for workloads that are variable or intermittent [22]. On the other hand, spot instances can slash costs by up to 90% compared to On-Demand prices, especially for stateless and fault-tolerant applications [20][21][24]. For instance, CAST AI applied a Spot Instance policy to an e-commerce demo app and brought compute costs down to £65.01 - a staggering 90% reduction [21].

To make the most of spot instances, use criteria-based selection to launch instances that meet specific vCPU, memory, and storage requirements [20]. Flexibility with instance types and Availability Zones can improve your chances of securing spot capacity [20]. Automation tools like EC2 Auto Scaling groups or EC2 Fleet can help manage capacity by replacing interrupted spot instances with on-demand ones. Additionally, AWS's rebalance recommendation feature can proactively manage workloads on spot instances [20][21].

For serverless applications, adopting cost-aware design patterns - like request aggregation, caching, and event-driven architectures - can help reduce unnecessary function calls. Regular monitoring can also uncover further savings opportunities [23]. If you’re using Google Cloud, Preemptible VM instances offer discounts of 60% to 91% compared to standard VMs, providing another cost-effective option for balancing savings with workload reliability [25][24].

These strategies, when combined, can significantly improve resource efficiency and help you manage PAYG costs more effectively.

Maintain Cost Efficiency Through Regular Reviews

Optimising resources is just the beginning; regular reviews are key to maintaining cost efficiency over time. By revisiting earlier efforts in monitoring, budgeting, and resource allocation, you can ensure your cloud strategy stays aligned with your organisation's shifting priorities. Regular audits are the backbone of this ongoing process.

Conduct Regular Cost Audits

Set aside time every quarter or six months to audit your cloud expenses. These audits help uncover opportunities to cut costs and ensure spending aligns with your business objectives [26]. During these reviews, focus on identifying areas like orphaned storage, unused IP addresses, oversized compute instances, and redundant subscriptions. Unused resources, if left unchecked, can quietly rack up unnecessary charges [28].

Tagging resources by department can provide clearer visibility into spending patterns [27]. This approach can also help prevent unexpected costs. For example, NASA estimated its annual cloud expenses to be £50 million in 2024 but overlooked data egress charges, which ended up adding £23 million to their yearly bill [27].

To avoid similar pitfalls, consider implementing automated clean-up procedures. For instance, consolidate redundant storage or compute instances and establish workflows to adjust configurations as workload demands evolve [29]. These steps not only save money but also reduce the risk of inefficiencies creeping back in.

Include Cross-Functional Teams

Managing costs effectively in a pay-as-you-go cloud model requires collaboration across departments. Bring together DevOps, Finance, and Procurement teams to ensure cost considerations are built into every decision [31]. Finance teams bring expertise in budgeting and cost allocation, while engineering teams offer insights into resource usage and optimisation opportunities [32][33]. This cross-functional approach ensures that both technical and business perspectives are accounted for [32].

Define shared financial and operational objectives and assign clear ownership of cloud resources to specific teams or individuals [30]. Offering training sessions for both technical and financial teams can improve collaboration and understanding. You might also create a Cloud Cost Centre of Excellence (CCOE), which brings together representatives from IT, finance, operations, and other departments to champion cost management practices like FinOps [31].

Consider External Consulting for Advanced Optimisation

If your internal teams are stretched thin or lack the specialised expertise needed for deeper savings, external consultants can step in to help. This is particularly valuable in complex cloud environments or when aiming for substantial cost reductions.

For example, Hokstad Consulting focuses on helping UK businesses cut cloud costs by 30–50%. Their services include detailed cloud cost audits, strategic migration planning, and ongoing optimisation support. They also offer a No Savings, No Fee model, ensuring their fees are tied to the savings they achieve. Their expertise spans areas like CI/CD automation, caching, and hybrid cloud strategies, making them a strong option for businesses seeking both cost efficiency and operational improvements.

For organisations managing intricate multi-cloud setups or requiring zero-downtime migrations, external consultants can bring the technical knowledge and strategic oversight necessary to achieve meaningful savings without sacrificing performance or reliability.

Conclusion

Managing expenses in PAYG models calls for consistent monitoring, careful budgeting, and ongoing adjustments. Using cloud-native tools, detailed dashboards, and real-time alerts can help implement proven cost management strategies effectively.

A key focus should also be resource optimisation - ensuring resources are used efficiently to avoid unnecessary spending. The clarity offered by PAYG models enables businesses to match their costs directly to actual usage, providing better financial alignment [34].

Achieving cost efficiency requires collaboration across teams. Finance, IT, and operations need to work closely, particularly during quarterly audits, to uncover opportunities for improvement and ensure spending aligns with overall business goals.

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