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Farrukh Khalid
Farrukh Khalid

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Cloud Economics 101: AWS EC2 Pricing Models & Cost Optimization

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Amazon Elastic Compute Cloud (EC2) is a web service that provides resizable compute capacity in the cloud. EC2 allows you to launch virtual machines (VMs), also known as instances, which are used to run applications. EC2 offers several pricing models to choose from, depending on your needs and usage patterns. Here are the three pricing models available for EC2, along with some tips to help you optimize your costs,

An aside: The Simple Monthly Calculator has been totally replaced with a new Pricing Calculator that AWS has released. I advise familiarizing yourself with the Pricing Calculator before that occurs.

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On-Demand Instances

With On-Demand pricing, you only pay for the resources you consume on an hourly basis. This is a good option if you have unpredictable workloads or if you need to scale quickly.


  1. Flexible pricing option
  2. No upfront Cost
  3. Instant Availability
  4. No Long-Term Commitments
  5. Suitable for Variable Workloads
  6. Global Availability
  7. No Capacity Planning
  8. No Termination Fees


  1. Most expensive pricing plans
  2. Inefficiency with Idle Instances
  3. No Price Predictability
  4. Not Ideal for Long-Term Workloads
  5. No Capacity Reservation

Spot Instances

With Spot pricing, you can bid on spare Amazon EC2 capacity and potentially save up to 90% on your compute costs because you’re occupying this spare capacity that’s otherwise just losing money. This is a good option if you have workloads that are flexible and can be interrupted.


  1. Flexible Pricing
  2. Ideal for Non-Critical Workloads
  3. Diverse Instance Types
  4. Elastic Scaling


  1. Potential for Interruption
  2. Unpredictable Pricing
  3. Data Persistence
  4. Spot Fleet Configuration
  5. No guarantee of resource Availability

Reserved Instances

With Reserved Instances, you can purchase capacity in advance at a discounted price. This is a good option if you have predictable workloads and can commit to a certain level of usage over a one- or three-year term.


  1. Price Predictability
  2. Capacity Reservation
  3. Flexibility in Payment Options
  4. Long-Term Commitment Benefits
  5. Cost Savings


  1. Upfront Payments
  2. No Price Reduction Protection
  3. paying for Unused Capacity
  4. Not Ideal for Short-Term or Unpredictable Workloads
  5. Purchase Commitment

Saving Plans

Savings Plans require you to commit to a level of compute usage measured in dollars an hour for a one or three-year period. All utilization up to that level is subject to the savings discount. Everything above that level is available on demand.


  1. Significantly cost effective
  2. No Upfront Payment
  3. Predictable Costs
  4. Easier Management:


  1. Potential Over commitment
  2. Not Ideal for Short-Term or Unpredictable Workloads
  3. Limited Regional Flexibility
  4. Limited Price Protection

Optimizing costs while using EC2 instances is crucial to manage your cloud expenses efficiently. Here are some tips to help you optimize your EC2 costs

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first learn how much the AWS services you are using will cost you before you take any steps to cut costs. You can also view aws cost explorer to analyze usage and cost of your resources

Underutilized Amazon EC2 instances

Find underutilized Amazon EC2 instances, and stop or downsize them to save money. AWS Cost Explorer Resource Optimization can be used to generate a summary of EC2 instances that are either idle or underutilized. You may cut expenses by either halting or reducing the size of these instances. To halt instances automatically, use AWS Instance Scheduler.

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Under utilized Amazon EBS volumes

Identify low-utilization Amazon EBS volumes and save money by snapshotting and subsequently removing them. EBS volumes with very little activity with less than 1 IOPS per day during a 7-day period are most likely not in use. Use the Trusted Advisor Underutilized Amazon EBS Volumes Check to identify these volumes. To save money, take a photo of the volume (in case you need it later), then delete it. The Amazon Data Lifecycle Manager allows you to automate the production of snapshots.

Use Auto Scaling

You can use Auto Scaling to automatically scale your EC2 instances up or down based on demand. This can help you optimize costs and improve resource utilization.

Use Amazon EC2 instance reservations

If you have predictable workloads, you can use instance reservations to save up to 72% on your EC2 costs.

Use Amazon EC2 Spot Fleets

With Spot Fleets, you can automatically launch and terminate instances based on your desired capacity and the current Spot price. This can help you optimize costs and improve resource utilization.

Analyze Amazon DynamoDB usage

Analyze your DynamoDB use in CloudWatch by tracking ConsumedReadCapacityUnits and ConsumedWriteCapacityUnits metrics:. Use the AutoScaling feature to automatically scaleup or scale down your DynamoDB table. You may also go for the on-demand option. This option allows you to pay-per-request for reading and writing requests, allowing you to easily balance costs and performance.

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Idle load balancers

To obtain a report of load balancers with a RequestCount of less than 100 during the previous 7 days, use the Trusted Advisor Idle Load Balancers check. Those loadbalancer can be deleted to reduce cost.

Compute Savings Plans

Reduce the cost of EC2, Fargate, and Lambda by using compute savings plans. Regardless of instance family, size, AZ, location, OS, or tenancy, Compute Savings Plans automatically apply to EC2 instance consumption. They also apply to Fargate and Lambda usage. Use Compute Savings Plans for one year and pay nothing up ahead to save up to 54% off of on-demand pricing. Use AWS Cost Explorer’s suggestions to make sure you selected computing, one year, with no upfront alternatives.

Understanding AWS EC2 pricing structures and cost optimization is essential for realizing the full potential of AWS compute services. It's a never-ending journey , Its not just about spend wisely but also effectively. With the right techniques and monitoring, you can combine cost-efficiency with performance, guaranteeing that you are not only in control of cloud costs but also well-positioned for innovation and development.

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