Thursday, December 07th 2017 by Kirill Bensonoff
Cloud computing is often marketed as a utility – pay for what you need, when you need it, and if you need more it will be available instantly. Just like water or electricity, you don’t have to think about how much you’re going to use in advance, and if you decide to fill up your swimming pool or use your blow dryer you’re just paying for the additional usage after the fact and not calling up the utility company first to buy another chunk of water or power.

With this mindset, pay-as-you-go cloud services sounds like a no-brainer. There are obvious advantages with this model:

  • Minimal up-front costs

  • Your expenses only grow when your usage (and theoretically your revenue) increases

  • You’re not over-buying and paying for services you don’t end up needing

  • You’ll never “run out” of storage

  • Obvious cash flow benefits

  • You’re not locked into a rate for years, but instead benefit from prices constantly going down due to the competitive nature of the cloud industry

While the above advantages are nothing to sneeze at, many companies don’t fully realize the other less positive side of the coin when it comes to pay-as-you-go cloud services.

Are you setting your clients up for sticker shock?

AWS lures some customers in with their freemium model, offering 750 hours/month and 5GB of storage free before pas-as-you-go rates kick in. But once they exceed that threshold, that monthly bill can get big in a hurry.

If your customers aren’t aware of the full implications of their cloud billing model, they may be in for a big surprise when usage spikes. Many pay-as-you-go models don’t have the same volume discounts for storage and data transfers that can come with more traditional services pricing, which could lead to some huge bills… and you’ll be the unfortunate messenger.

According to 451 Research, committing to reserved instances can save companies 30% compared to a pure utility model. In exchange for making a one-to-three year commitment to pay for a certain level of usage, you receive substantial discounts. Previously companies paid upfront for some or all of their one-year or three-year commitment. But in May 2017, Amazon changed the pricing model to allow companies to purchase reserved instances without requiring any upfront payment.

For the customer, this offers similar cash flow benefits to the pay-as-you-go model (paying for it as an operating expense vs. a capital outlay) while still snagging a much lower rate per unit of usage and only having to commit to one or three years of AWS services.

Locking in lower prices while accounting for varying usage rates

For businesses that have a steady usage rate that’s not expected to see wild fluctuations, a reserved instance strategy is a no-brainer to save money. But for customers that don’t have such a predictable workload, they don’t want to worry about usage spikes that exceed their reserved instances and impacts performance.

Given the significant price differential between reserved instances and pure pay-as-you-go (we’re talking 30-40% cheaper on a one-year reserved instance and 50-60% cheaper for three years), you could buy enough headroom for your clients’ busiest days and still save in the long run. But a more sophisticated strategy is to combine reserved instances AND pay-as-you-go for the most cost-efficient approach.

Just like you wouldn’t keep an 18-wheeler in your driveway because once a year you make a massive IKEA run, there’s no reason to maintain a massive amount of capacity all year just for a Black Friday surge or Tax Day spike in usage. Once you understand a company’s baseline steady usage rate, switch that to a reserved instance, with a little extra room for day-to-day variation. Then work with your clients to plan for peak usage by switching on pay-as-you-go services to handle seasonal surges.

You can further make the most of reserved instances and minimize dipping into pay-as-you-go charges through smart scheduling – analyzing current usage and planning non-time-critical jobs to run during slow hours will maximize utilization of reserved instances and save your client money without taking a performance hit. This proactive planning is why they hired an MSP instead of DIY-ing their cloud strategy.

Ongoing optimization is the key to customer satisfaction

As an MSP, figuring out the right purchasing model for your customers is critical to your success. While it’s easy to sign up a customer for pay-as-you-go and not worry about it, you’re setting your customer up to potentially pay more than they have to. But when those bills get too high, they’re going to start shopping around and put you on the defensive to retain their business.

By proactively right-sizing your customers’ cloud deployments and saving them as much money as possible early on, you’ll show them that you’re a real partner that’s invested in a long-term relationship that benefits you both.

And don’t be shy about what you’re doing and why you’re doing it! Customers appreciate saving money and your willingness to forsake some easy margin that’s not in their best interests.

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