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Understanding the Different AWS Pricing Models

Originally Published January, 2024 · Last Updated July, 2024

Navigating through the maze of Amazon Web Services (AWS) pricing can feel overwhelming. But it doesn’t have to be. Whether you’re a startup on a shoestring budget or a large corporation seeking efficiency, understanding the diverse pricing models is crucial to optimizing your AWS cloud cost.

Here, we’ll break down the four AWS pricing models (On-demand, Reserved Instances, Spot Instances, and Savings Plans) in a way that’s easy to digest, highlighting key strategies to make the most of your cloud investment. 

With clear, actionable insights, you’ll soon see how choosing the right AWS pricing model can be a game-changer for your business. 

An overview of the main AWS pricing models

AWS offers several pricing models to fit various business needs and usage patterns. Understanding these models is the first step to choosing the right one for your business.


With the On-Demand pricing model, you have the flexibility to pay for compute capacity by the hour or second with no long-term commitments. This means you can scale your Amazon EC2 usage up or down and only pay for what you use, making On-Demand a perfect fit for applications with unpredictable workloads or for short-term trial and testing purposes. 

Reserved Instances

Reserved Instances (RIs) allow you to reserve Amazon EC2 compute capacity for a predetermined period (one or three years) in exchange for a significantly discounted hourly rate compared to On-Demand instance pricing. 

RIs come in three categories

  1. Standard: Offering the highest savings, these can reduce costs by up to 72% compared to On-Demand rates and are ideal for consistent, uninterrupted usage.
  2. Convertible: While offering up to 54% savings on On-Demand prices, these also allow you to configure the RI’s features, provided your changes lead to the creation of Reserved Instances of the same or higher value. Similar to Standard RIs, they’re suitable for constant usage patterns.
  3. Scheduled: Designed to be activated during specific reserved time slots, this is perfect for workloads that follow a predictable, repeating schedule, whether it’s part of a day, a week, or a month.

Overall, you’ll find RIs ideal if you have steady-state workloads and can commit to using a specific instance type over the long term.

Savings Plans

Savings Plans is a flexible pricing model providing lower EC2 pricing, as well as lower pricing options for Lambda and Fargate. This reduced cost is in exchange for a commitment to a consistent amount of usage, measured in $/hour, for a one- or three-year period. 

They offer more flexibility than Reserved Instances, as you can switch between instance families, operating systems, and AWS regions while still benefiting from the savings.

Spot Instances

Spot Instances give you access to unused or reserved capacity at up to a 90% discount compared to On-Demand prices. 

They’re ideal for flexible, fault-tolerant, and stateless workloads, as they can be interrupted with two minutes of notification when AWS needs the capacity back.

Factors to consider when choosing a pricing model

When you’re sifting through AWS pricing models, there is no need to get overwhelmed. Ensure you’re making the right choice by focusing on how each of the following factors aligns with your organization’s needs:

Workload predictability

If your workloads are predictable and steady, opting for pricing models that favor long-term commitments might be in your best interest. AWS offers options like Reserved Instances, which can provide substantial savings over time for consistent usage.

Budget constraints

Staying on budget can be tricky with unpredictable workloads. Pay-as-you-go services, such as On-Demand, allow you to manage costs effectively with no upfront payments, matching your spend to actual usage.

Commitment period

Long-term contracts usually come with better pricing, but is that what’s best for you? Analyze your long-term plans. If you can commit, then options like Savings Plans might be a win. Flexibility in your commitment period is key if your future usage isn’t crystal clear.

Usage volume and scale

Volume matters in pricing. The more you use, the cheaper it gets. Scale your AWS resources up or down with services tailored for high-volume usage, like AWS’s On-Demand or Spot Instances, to optimize your expenditures.

Operational flexibility

Don’t underestimate the value of operational flexibility. AWS provides options that allow you to adapt quickly to changing business needs without being penalized for altering your usage or commitments.

Tips for picking the right pricing model based on need

Choose a model that aligns with your needs for cost optimization and secure, scalable cloud computing resources. The right decision hinges on understanding your current and future requirements. You could also make use of the AWS Free Tier to gain an initial, basic understanding of how AWS can help you. 

Let’s look at a few of the most important considerations.

Conduct a thorough cost-benefit analysis

Begin by evaluating the costs and benefits of each AWS pricing model. An in-depth metrics analysis can help you identify not just the upfront costs but also the long-term implications of the pricing structure you choose. Consider how each model affects your ability to consume services efficiently.

Understand your applications

Understand how your applications run on AWS. Do they need constant uptime with predictable costs? Or is their usage sporadic, where pay-as-you-go might save money? 

Your app’s architecture and performance will guide you to the most cost-effective pricing model, from On-Demand to Spot Instances. Also, you can use tools like AWS Cost Explorer to manage your AWS costs and usage over time.  

Stay informed about AWS pricing updates

AWS service pricing isn’t static. It can evolve. Using tools like an AWS pricing calculator, along with staying up to date on changes, will ensure you’re always using the most cost-effective approach, and you might even find opportunities to switch models or adopt new features that can secure savings further.

Seek expert advice

Consider consulting AWS experts or using professional services. Their insights can direct you toward the best practices in cost optimization and pricing models. They’ll account for your unique setup and offer bespoke advice, potentially saving you a significant amount of time.

Consider future growth and changes

Plan for flexibility to accommodate future growth or shifts in strategy. While Reserved Instances can offer discounts for long-term commitments, make sure this choice doesn’t limit your ability to adapt to new opportunities or changes in demand. There’s no one-size-fits-all approach; it’s about what works best for you and your business.

By focusing on these tips, you can establish a solid foundation for managing AWS costs. 

Can you combine pricing models for more cost-efficiency?

When strategizing your AWS expenses, mixing Savings Plans with Reserved Instances and Spot Instances can lead to substantial cost savings. 

Think of Savings Plans as your cost foundation. They offer a consistent discount and apply not just to EC2 instances but also to AWS Lambda and AWS Fargate services across different regions. 

But remember, these plans lock you in for one or three years, so it’s a balance of commitment and savings.

Then, you can layer in Convertible Reserved Instances (CRIs)—they provide the vertical flexibility you need. Unlike standard RIs, CRIs allow you to switch instance types, making them a more adaptive portion of your cost-saving strategy without being entirely fixed in your commitment.

For workloads with dynamic needs or those that can tolerate interruptions, Spot Instances are ideal. They can potentially offer the biggest discounts for your compute capacity, perfect for when you can predict and navigate around their availability.

Here’s a quick breakdown:

  • Savings Plans: Broad coverage, fixed long-term commitment.
  • Convertible Reserved Instances: Flexibility in instance selection, medium-term commitment.
  • Spot Instances: Highest cost-savings, best for flexible, interruption-tolerant workloads.

By carefully layering these options, you’ll find a sweet spot between cost and commitment, so you’re not overextending your budget with unnecessary capacity reservations. 

Keep in mind that using Spot Instances relies on your ability to handle potential volatility. They’re not suited for critical, always-on applications but can significantly reduce costs for the right use cases.

How ProsperOps can help

Navigating AWS pricing and provisioning resources can be tricky, especially when trying to optimize costs. 

ProsperOps specializes in AWS cost management, providing recommendations for an optimal mix of Savings Plans and other pricing models that best suit your usage.

When you’re considering Reserved Instances or dealing with complex licensing, ProsperOps can be a lifeline. They take a deep dive into your AWS consumption patterns, using tools like License Manager to ensure you’re getting the discounts you deserve without the headache of manual management.

Here’s what you can expect ProsperOps to help with:

  • Analyzing usage: Understanding your AWS needs to tailor your investment in Savings Plans.
  • Pricing models: Guiding you through Reserved Instances and Savings Plans to balance costs.
  • Hands-off optimization: Automating the cost optimization process so you can focus on your business.

Leveraging ProsperOps positions you to maximize your AWS investment, ensuring every dollar spent is one that moves your business forward.

Start optimizing your AWS investment with ProsperOps today

For AWS cost optimization, you need to consider the various pricing models that align with your usage patterns and financial goals. 

While cloud services like Amazon EC2 Auto Scaling and Capacity Reservation offer flexibility, it’s the strategic approach toward pricing models like Savings Plans and Convertible Reserved Instances (RIs) that unlocks cost efficiency.

Using an AWS cost management tool like ProsperOps can help you use automation to strategically select a blend of  Savings Plans and Convertible RIs and position your business for optimal savings. 

Take advantage of our professional automation software to reduce your costs and help shape an AWS strategy according to your needs. Book a ProsperOps demo today.



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