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Understanding AWS Costs

Learn how AWS billing works and how CloudWise helps you optimize your cloud spending.

🎯 What You'll Learn​

  • How AWS billing and cost allocation works
  • Key AWS cost concepts and terminology
  • How CloudWise interprets and presents your cost data
  • Best practices for cost monitoring and optimization

💰 AWS Cost Fundamentals​

How AWS Billing Works​

AWS charges you for resources you consume across various services:

  • Compute: EC2 instances, Lambda functions, ECS/EKS clusters
  • Storage: S3 buckets, EBS volumes, EFS file systems
  • Database: RDS instances, DynamoDB tables, ElastiCache
  • Network: Data transfer, CloudFront, Load Balancers
  • Other Services: Many more individual AWS services

Billing Periods and Cycles​

  • Monthly Billing: AWS bills monthly with detailed usage reports
  • Daily Cost Updates: Cost data is updated daily (with 1-2 day delay)
  • Estimates: Current month costs are estimates until finalized

📊 Key AWS Cost Concepts​

1. Unblended vs Blended Costs​

Unblended Costs (Recommended):

  • Actual rates you pay for each service
  • Includes Reserved Instance discounts applied to specific instances
  • Shows true cost allocation per service
  • CloudWise uses unblended costs by default

Blended Costs:

  • Average rate across all usage in your account
  • Reserved Instance discounts are averaged across all instances
  • Less accurate for cost allocation

2. Cost Categories​

By Service:

  • EC2-Instance: Virtual machines and associated costs
  • Amazon S3: Object storage costs
  • Amazon RDS: Managed database costs
  • AWS Lambda: Serverless function execution costs

By Usage Type:

  • On-Demand: Pay-per-use pricing
  • Reserved Instances: 1-3 year commitments with discounts
  • Spot Instances: Discounted spare capacity
  • Savings Plans: Flexible discount programs

3. Cost Allocation Tags​

Tags help organize and track costs:

Environment: Production, Staging, Development
Project: ProjectA, ProjectB
Owner: TeamAlpha, TeamBeta
CostCenter: Engineering, Marketing

🔍 How CloudWise Processes Your Cost Data​

Data Collection​

  1. Cost and Usage Report: CloudWise reads cost history from the AWS Cost and Usage Report that your connect flow sets up. It uses the Cost Explorer API to fill in missing history and for Savings Plans and Reserved Instance data
  2. Daily Sync: Syncs cost data once a day and backfills missing history. How much you can view depends on your plan: Free shows the shortest window and Compliance the longest
  3. Service Classification: Automatically categorizes services
  4. Optimization Analysis: Identifies savings opportunities

Cost Metrics Displayed​

Spend Trends:

  • Dashboard: spend for the selected period with the change against the previous period of the same length
  • Cost Reports: group by month and compare with the previous period

Service Breakdowns:

  • Top 10 most expensive services
  • Cost by AWS region
  • Cost trend for each row

Optimization Insights:

  • Right-sizing recommendations
  • Reserved Instance opportunities
  • Unused resource identification
  • Cost anomaly detection

💡 Understanding Your CloudWise Dashboard​

Main Dashboard Cards​

💰 Current spend

  • Your spend for the selected period
  • The change against the prior period
  • A forecast for the next N days when one is available

📈 Trend

  • The Dashboard hero shows a trend arrow and a sparkline for the selected period
  • The period selector offers up to your plan's history

🎯 Cost breakdown

  • Your services (or regions, accounts, tags) ranked by cost
  • Each one's share of spend and its change against the prior period

🔧 Savings opportunity and Top waste findings

  • Savings opportunity: the monthly saving across your open findings
  • Top waste findings: the biggest findings with confidence, risk and monthly saving; click one for details

Service-Level Details​

Switch the Cost breakdown tab between Service and Region to compare, and open a waste finding for the resource-level recommendation.

🚨 Understanding Cost Alerts​

Budget Alerts​

Budget alerts notify you when spend reaches the percentages you choose (for example 50%, 80%, 100% or 120% of the budget).

Anomaly Detection​

Identifies unusual spending patterns:

  • Service spikes: Unexpected increases in a service's daily cost. The alert shows the region where the spike was seen

💳 Cost Optimization Strategies​

1. Right-Sizing​

  • Identify over-provisioned resources
  • Match instance types to actual usage
  • Consider burstable performance instances

2. Reserved Instances & Savings Plans​

  • 1-year and 3-year commitments: a longer term earns a bigger discount (see the Savings Plans pricing page)
  • Flexible Savings Plans vs specific Reserved Instances

3. Storage Optimization​

  • S3 Intelligent Tiering
  • Lifecycle policies for older data
  • EBS volume optimization

4. Network Cost Reduction​

  • Data transfer optimization
  • CloudFront for content delivery
  • VPC endpoint usage

📋 Best Practices for Cost Management​

Regular Monitoring​

  • Weekly Reviews: Check cost trends and anomalies
  • Monthly Planning: Review and adjust budgets
  • Quarterly Analysis: Deep-dive into cost optimization

Tagging Strategy​

Implement consistent cost allocation tags:

Required Tags:
  - Environment: prod/staging/dev
  - Project: project-name
  - Owner: team-or-person
  - CostCenter: business-unit

Optional Tags:
  - Purpose: application-purpose
  - Schedule: always-on/business-hours/weekend-off

Team Awareness​

  • Share cost reports with development teams
  • Include cost considerations in architecture decisions
  • Regular cost optimization workshops

🆘 Common Cost Confusion Points​

"Why don't my costs match my AWS bill exactly?"​

Timing Differences:

  • CloudWise shows costs as they accrue
  • AWS bills can include taxes, credits, and adjustments
  • CloudWise does not convert currencies

Data Processing Delays:

  • AWS cost data has 1-2 day delay
  • Current month costs are estimates
  • Final bills include end-of-month adjustments

"What's included in 'Other' costs?"​

"Other (N services)" is the combined cost of every service ranked below the services listed in the breakdown. On Compliance, all services are listed.

"Why do my costs fluctuate daily?"​

Normal AWS billing patterns:

  • Reserved Instance charges on monthly anniversary dates
  • Data transfer costs vary by usage
  • Spot instance pricing changes
  • Regional pricing differences

📚 Additional Resources​

AWS Documentation​

CloudWise Help​

Questions about your AWS costs? CloudWise provides personalized insights based on your actual usage patterns. Connect your AWS account to get started with cost optimization tailored to your business needs.