Best Practices for Purchasing a Savings Plan to Reduce AWS Costs

In our previous blog, we explored the benefits of AWS Savings Plans and how they provide substantial savings by offering discounted rates for committing to consistent cloud usage over time. These plans are ideal for organizations looking to optimize their cloud costs, but the value they deliver depends on selecting the right plan type, term, and payment option.

In this guide, we’ll break down the best practices for buying AWS Savings Plans, helping you make well-informed choices to maximize savings, maintain flexibility, and align with your workload needs.

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Heat Map Analysis: Maximizing the Power of Savings Plans

The heat map below highlights the role Savings Plans play in AWS cost optimization.

Over the analyzed period:

• Total Costs: $8,316.32
• Average Hourly Cost: $49.50

The distribution across three categories—Savings Plans (blue), On-Demand (red), and Spot Instances (green)—clearly shows the dominance of Savings Plans in reducing costs for predictable workloads.

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Why Savings Plans Matter

• Core Cost Optimization: The red sections (On-Demand) dominate the heat map where Savings Plans are underutilized, underscoring how committing to a predefined spend can unlock substantial discounts compared to On-Demand rates.
• Consistent Savings: The blue sections (Savings Plans) demonstrate their ability to provide a stable and predictable cost structure, making them ideal for baseline workloads with steady compute needs.
• Strategic Distribution: The green sections (Spot Instances) complement Savings Plans by handling flexible workloads at the lowest possible cost.

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Steps to Generate and Analyze the Heat Map for AWS Costs

To create a similar heat map and analyze your AWS costs, follow these steps:

1. Log in to AWS Cost Management Console.

2. Open Cost Explorer

3. Set the Date Range

• From the Date range dropdown, select the period for analysis (e.g., "Nov 6, 2024 - Nov 12, 2024").
• This ensures the chart reflects costs over the same timeframe as the analysis.

4. Group Costs by Purchase Option

• Under the Group by dropdown, select the Purchase option to view costs distributed across Savings Plans, On-Demand, and Spot Instances.

5. Change the Chart Type to Bar Chart

• Use the chart type selector in the top-right corner of the chart area and select Bar Chart.
• This visualization highlights how costs are distributed by purchase option.

6. Analyze the Heat Map

• Examine the chart to understand the contribution of Savings Plans (blue), On-Demand (red), and Spot Instances (green) to your overall costs.

By following these steps, you can create the heat map, review your AWS usage, and find ways to save more with Savings Plans. The chart helps highlight the importance of smart cost management, ensuring steady savings and predictable costs for regular workloads.

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Best Practices to buy a Savings Plan

Here are key best practices to follow when purchasing a savings plan to optimize your AWS spend:

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1. Run Savings Plans in an Empty AWS Account

When Savings Plans are tied to AWS accounts with existing resource usage in a multi-account AWS Organization, they prioritize matching resources within the same account. This can lead to suboptimal savings if lower-discounted resources within the account are prioritized over higher-discounted resources in other accounts. To maximize savings, it is best to place Savings Plans in an empty AWS account with no resource usage. When not tied to specific accounts, Savings Plans automatically prioritize the highest-discounted resources across the organization. If you do not already have an empty account, consider creating one within your AWS Organization .

However, note that Savings Plans cannot be transferred between accounts, so it is important to apply this strategy when purchasing new Savings Plans to optimize savings and maximize cost efficiency.

Example 1: Non-Empty AWS Account

Account A

Savings Plan Allocation for m6i.large Windows instances

• Cost per instance: $0.188/hr
• Number of instances: 50
• Savings Plan Discount: 25%
• Calculation: 50 × 0.188 × 0.25 = 2.35 (total hourly savings for m6i.large instances)

Savings Plan Allocation for Lambda

• Lambda usage: $0.6/hr remaining from the $10/hr Savings Plan.
• Savings Plan Discount: 10%
• Calculation: 0.6 × 0.10 = 0.06 (total hourly savings for Lambda)

Total Hourly Savings (Account A)

• 2.35+0.06=2.41 (hourly savings for Account A)

Monthly Savings

• ‍‍Total savings are for 730 hours/month (approximate hours in a month).
• 2.41×730=1,759.3 (total monthly savings for Account A)2.41×730=1,759.3(total monthly savings for Account A)

Compute Savings Plan Effective Discount

• Savings Plan Cost: $10/hr
• Actual Savings: $2.41/hr
• Effective Discount: (2.41/10) x 100 = 24.1%‍

‍Example 2: Empty AWS Account

Account C: Compute Savings Plan Allocation for Account B

Savings Plan Allocation for c6g.large Linux instances

• Cost per instance: $0.0848/hr
• Savings Plan Discount: 47%
• Total hourly savings for 222 instances : 222 × 0.0848× 0.47 =4.45 (hourly savings for c6g.large Linux instances in Account B)

Remaining Resources

• Remaining 78 instances and all Account A usage are billed at on-demand rates, so no savings here.

Monthly Savings

• Total savings are for 730 hours/month.
• 4.45×730=3,248.50 (total monthly savings for Account B)

Compute Savings Plan Effective Discount

• Savings Plan Cost: $10/hr
• Actual Savings: $4.45/hr
• Effective Discount: (4.45/10) x 100 =44.5%

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2. Use the Right Type of Savings Plan

AWS offers two main types of Savings Plans: Compute Savings Plans, which provide flexibility across a variety of AWS services like EC2, Fargate, and Lambda, making them ideal for unpredictable workloads; and EC2 Instance Savings Plans, which are best suited for more predictable, EC2-specific workloads, offering savings on instance families, sizes, and regions. Selecting the right plan based on your usage pattern can help optimize costs while maintaining the necessary flexibility or predictability for your workloads.

Scenario: You run a predictable EC2 workload (using m5.large instances) for 100 hours per month. You purchase an EC2 Instance Savings Plan and a Compute Savings Plan for the same workload.

Example Calculation:

EC2 Instance Savings Plan (3 years, no upfront)

• Discount: 40% off on-demand price.
• Hourly Cost: $0.096 per m5.large instance (on-demand price).
• Savings: 40% of $0.096 = $0.0384/hour.
• Monthly savings for 100 hours: $0.0384 * 100 = $3.84/month.

Compute Savings Plan (3 years, no upfront)

• Discount: 20% off on-demand price.
• Hourly Cost: $0.096 per m5.large instance (on-demand price).
• Savings: 20% of $0.096 = $0.0192/hour.
• Monthly savings for 100 hours: $0.0192 * 100 = $1.92/month.

Savings Difference

• $3.84 (EC2 Instance Savings Plan) - $1.92 (Compute Savings Plan) = $1.92/month additional savings by selecting the right plan.

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3. Commit to Longer Terms for Higher Savings

AWS offers significant discounts on Savings Plans when you commit to longer terms. The longer the commitment, the higher the discount. There are two primary options: 1-year and 3-year commitment plans. If your cloud usage is predictable, the 3-year commitment typically provides the best savings, but the choice will depend on your business needs.

Scenario: 1-Year vs 3-Year No Upfront Compute Savings Plan

• Savings Plan Purchased: $5/hr Compute Savings Plan.
• Commitment Term Options: 1-year and 3-year.

Example Calculation

1-Year Commitment Plan

• Discount: 15% off on-demand prices.
• Hourly Cost: $5/hr (the rate of the Savings Plan).
• Savings per Hour: $5 × 15% = $0.75/hr.
• Monthly Savings: $0.75 × 24 hours/day × 30 days/month = $540/month.
• Annual Savings: $540 × 12 months = $6,480/year.

3-Year Commitment Plan

• Discount: 30% off on-demand prices.
• Hourly Cost: $5/hr (the rate of the Savings Plan).
• Savings per Hour: $5 × 30% = $1.50/hr.
• Monthly Savings: $1.50 × 24 hours/day × 30 days/month = $1,080/month.
• Total Savings over 3 Years: $1,080 × 36 months = $43,200.

Savings Comparison

• 1-Year Commitment: $6,480 in savings over 1 year.
• 3-Year Commitment: $43,200 in savings over 3 years.
• Savings Difference: $43,200 - $6,480 = $36,720 additional savings over 3 years by choosing the 3-year term.

By committing to a longer-term Savings Plan, you can significantly reduce your AWS costs and achieve predictable savings over the long run.

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4. Right-Size Your Resources before purchasing savings plan

Always ensure that your EC2 instances and other compute resources are right-sized before purchasing Savings Plans. Overprovisioning resources can lead to wasted savings, while under provisioning can hinder performance.

Scenario: You have 3 t2.large EC2 instances running for 700 hours per month. Without right-sizing, you are paying $0.092/hr per instance.

Example Calculation:

Before Right-Sizing (3 t2.large instances)

• Hourly cost: $0.092.
• Monthly cost for 3 instances: 3 * $0.092 * 700 = $193.20.

After Right-Sizing (switch to t2.medium, costing $0.046/hr)

• Hourly cost: $0.046.
• Monthly cost for 3 instances: 3 * $0.046 * 700 = $96.60.

Savings Difference

• $193.20 (before) - $96.60 (after) = $96.60/month savings by right-sizing.

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Conclusion

By following these best practices, you can ensure that you’re maximizing the cost savings from your AWS Savings Plans. Running them in an empty account, automating the management, and selecting the right plan based on your usage will enable you to achieve the most significant discounts, ultimately improving your cloud cost optimization efforts. Always monitor and adjust your usage, and consider long-term commitments to lock in the best possible rates.

Quick Checklist:

• Run Savings Plans in an empty account for optimal savings.
• Choose the right type of Savings Plan based on workload.
• Commit to longer terms for higher discounts.
• Right-size instances to avoid unnecessary costs.