Microsoft Azure is the second most widely used cloud service provider, capturing 25% of the market share in the first quarter of 2024. With 200+ services and different pricing models, its flexibility goes far beyond on-premise alternatives.
However, this flexibility introduces the challenge of managing and forecasting costs in an environment where spending can fluctuate dramatically — even on a per-second basis.
With cloud computing, procurement happens in real time. The shift to On-Demand resources means that costs are incurred as soon as services are provisioned with just a few clicks. This model is a stark contrast to the traditional process, which required detailed planning, budget approvals, and a clear ROI understanding before any financial commitments. As a result, many organizations struggle with lack of accountability and spiraling cloud costs.
This is why Azure cost optimization has become a crucial part of infrastructure management. It’s not just about cutting costs, but ensuring you’re using resources efficiently and getting the most value for what you’re spending.
In this article, you’ll learn all about Microsoft Azure cost optimization: what it is, why it’s important, pricing models, and the best tools and strategies for reducing your Azure costs.
Why Microsoft Azure Cost Optimization Is Important
Azure cost optimization is crucial for preventing unnecessary overspending while ensuring that your cloud resources are being utilized efficiently to drive maximum value. Here are the primary benefits of Azure cost optimization:
Better cost efficiency
Azure cost optimization helps you get the most out of your cloud budget. Analyzing your spending patterns lets you identify areas where you’re overspending. For example, you might find you’re paying for Azure storage you’re not using or running VMs at times when they’re not needed.
With this data, you can make adjustments like:
- Eliminating unused resources: Identify and remove idle or obsolete resources to reduce unnecessary expenses and streamline your cloud environment.
- Right-sizing underutilized VMs: Adjust underutilized VMs to match actual workload needs, ensuring you’re not overpaying for excess capacity.
- Taking advantage of Azure Hybrid Benefit: Leverage existing on-premises Windows Server and SQL Server licenses to save up to 85% on Azure costs.
Scalability without overspending
Optimizing costs lets you scale your Microsoft Azure resources without breaking the bank. You can use auto-scaling features to automatically adjust resources based on real-time demand and prevent overspending during periods of low activity.
For predictable workloads, Azure Reserved Instances allow you to lock in lower rates for a set amount of usage, leading to better cost stability over time. You can also take advantage of highly discounted Spot VMs for non-critical workloads that can handle disruptions. Thus, cost optimization on Azure not only supports scalability but does so in a financially sustainable way, enabling businesses to expand their operations without the fear of overspending.
Stronger financial accountability
Azure cost optimization also helps promote financial accountability across your organization. You can track and allocate costs to specific departments or projects for:
1. Clearer visibility into cloud spending: You get detailed info on how resources are used across departments and projects. This transparency helps you break down costs and see where you’re spending your cloud budget and why. Leadership can monitor usage trends, spot inefficiencies, and identify areas for cost-saving adjustments.
2. Easier budgeting and forecasting: Analyze past spending patterns and estimate future needs to better predict cloud expenditures and align them with financial objectives. You’ll avoid unexpected budget overruns and empower your team to plan their cloud spending with confidence.
3. Improved ability to charge back costs: Cost optimization delivers a more accurate chargeback or showback model, encouraging teams to take responsibility for managing their own budgets. Specific departments or projects are directly accountable for their cloud usage, and costs are distributed fairly, preventing one department from overspending at the expense of others.
Greater business agility
Don’t underestimate the lost opportunity costs you’ll accrue when you tie up too much capital in cloud spending. Lowering your overall cloud spend means you free up cash flow for other areas of your business, such as product development and customer support, as well as potential investment opportunities.
Reducing costs through Azure optimization will provide you with a long-term competitive edge. Businesses that optimize and manage their cloud spending efficiently have the capital available to quickly respond to market changes, deliver superior customer experiences, and invest in growth.
Microsoft Azure Pricing Models
Azure offers a range of pricing options designed to accommodate different workloads, usage patterns, and budgetary constraints. These models give you flexibility and cost-saving opportunities, but only if you pick the right one for your needs. So, before we explore Azure cost optimization strategies, let’s examine the different pricing models available:
Pay-as-you-go
The default pay-as-you-go pricing model allows you to pay only for the resources you provision without any upfront commitments. Pay-as-you-go is flexible and suitable for organizations with variable or unpredictable workloads. Your team can scale resources up or down based on demand.
While this model offers a lot of flexibility, pay-as-you-go is the most expensive pricing option, leading to higher-than-expected costs over time.
Azure Reservations
Azure Reservations offer significant discounts compared to pay-as-you-go rates. If you commit to using a certain amount of specific resources monthly, over a period of one or three years, you can save up to 72% on compute costs.
Reservations are ideal if you have a stable demand for resources and want to ensure budget predictability. Locking in rates through Reservations allows you to better forecast your expenses and allocate budgets accordingly.
Reservations are available for various Microsoft Azure services, including VMs, SQL Database, Cosmos DB, and more.
Azure Spot Virtual Machines (Spot VMs)
Spot VMs allow you to take advantage of unused Azure capacity at steep discounts of up to 90%. These VMs are ideal for batch processing jobs, dev/test environments, stateless applications, and other workloads that can pause and resume without serious impact. However, Spot VMs can be evicted with little notice when Azure needs the capacity back.
Azure Hybrid Benefit
The Azure Hybrid Benefit is designed to help organizations maximize the value of their existing on-premises Windows Server and SQL Server licenses, as well as Linux licenses (Red Hat and SUSE).
This benefit allows you to significantly reduce the cost of migrating to Azure by using these licenses in the cloud. Specifically, it covers Windows Server VMs, Azure Stack HCI, and Azure Kubernetes Service (AKS) through Azure Arc, enabling you to pay only for the base compute rate, which is equivalent to the Linux rate.
For customers with active Software Assurance or qualifying subscription licenses, this benefit allows them to modernize and maintain flexible hybrid environments, such as running AKS and Azure Stack HCI at no extra cost. It can provide substantial cost savings, with estimates suggesting savings of up to 85% over standard pay-as-you-go rates
Dev/test pricing
Microsoft Azure offers special pricing for development and testing environments, allowing you to save up to 57% on a standard dev/test environment running SQL Database and App Service. This pricing model provides:
- Discounted rates on Azure services
- No charges for Windows Server in VMs (you only pay for compute)
- Free extended security updates for Windows Server and SQL Database
To use dev/test pricing:
- Create an Azure dev/test subscription.
- Link it to your Visual Studio subscription.
- Use the subscription for non-production workloads only.
Dev/test pricing allows you to experiment with applications without incurring the high costs associated with production environments.
15 Strategies for Effective Azure Cost Optimization
Use these proven strategies to optimize your Azure spending and maximize cloud cost savings without sacrificing performance:
1. Leverage Azure cost management tools
Microsoft Azure offers you a suite of native tools designed to help you monitor, analyze, and optimize your cloud spending:
- Azure Cost Management and Billing: Offers detailed cost analysis, budgeting, and forecasting capabilities to help businesses gain visibility into their Azure expenditures
- Azure Advisor: Provides personalized recommendations for optimizing costs by identifying underutilized resources, suggesting right-sizing opportunities and recommending long-term discount pricing models
- Azure Pricing Calculator: Enables accurate cost estimation for new projects or workloads, allowing for better budgeting and planning
2. Monitor and respond to cost spikes
Set up Azure Monitor alerts to detect unusual spikes in resource usage or costs so you can quickly identify and address potential issues.
You should also create a response plan for cost anomalies, which might include automated actions like scaling down resources or manual interventions like investigating the cause of the spike.
Use Azure Log Analytics to create custom queries that help you investigate cost spikes, and look for patterns or correlations that might explain sudden increases in spending.
3. Set up budgeting and alerts
Create detailed budgets in Azure Cost Management and break them down by resource group, subscription, or department. Then set up alerts at various thresholds — for example, at 50%, 75%, and 90% of your budget. This gives you more time to take corrective action before overspending.
You can also use action groups to automate responses to budget alerts. For instance, you could trigger an Azure Function to scale down resources when spending reaches a certain level.
4. Right-size underutilized resources
Make sure you regularly review your resource usage to identify oversized or underutilized assets. Azure Advisor provides personalized recommendations for right-sizing virtual machines, databases, and other resources.
Also, consider downsizing VMs that consistently have low CPU or memory utilization. For databases, look at query performance and storage usage to determine if a lower-tier option could suffice. Use Azure Monitor to track performance metrics over time and identify other idle or underutilized resources.
5. Configure VM autoscaling
Implement auto-scaling for your virtual machines to ensure you have the right amount of compute power to handle demand without overpaying for idle resources.
Use Azure Monitor to set up custom auto-scale rules. For example, you can scale up when CPU usage exceeds 70% and scale down when it drops below 30%. But don’t forget to configure your policies to determine which VMs are removed first when scaling down.
6. Standardize tagging and resource organization
Implement a complete, standardized tagging strategy organization-wide, and use tags to track costs by project, department, environment, or any other relevant category.
Create policies that enforce tagging on all resources, which helps with consistent cost allocation and reporting. And use tags in combination with Microsoft Azure Policy to automate governance. For example, you could create a policy that prevents the creation of expensive VM sizes in development environments.
7. Implement auto-shutdown
Set up auto-shutdown schedules for non-production VMs to prevent unnecessary costs for development or test environments that don’t need to run 24/7.
You can also use Azure Automation to create more complex shutdown schedules. For instance, you could shut down VMs on weekends or during holiday periods. Remember to communicate auto-shutdown schedules to your team and give them a process to temporarily override shutdowns when needed.
8. Leverage Azure Elastic Databases
Azure Elastic Databases offer a flexible and cost-effective solution for managing multiple databases with varying resource needs. You can scale database resources based on actual demand, so you avoid over-provisioning and under-utilization, both of which can drive up costs.
Instead of allocating fixed resources to each database, Elastic Databases allow you to share a pool of resources across multiple databases, optimizing their use during peak and low-traffic times. This approach improves resource allocation and reduces waste, making it ideal for applications with unpredictable workloads.
Leveraging Azure Elastic Databases helps you strike a balance between performance and cost efficiency, ensuring that you pay only for the resources you actually need.
9. Use Reserved Instances
Azure Reserved Instances offer significant discounts up to 72% for committing to long-term usage of one or three years. They’re ideal for workloads with predictable, steady-state usage patterns.
You can opt for a one- or three-year term, depending on your confidence in future usage projections. Leverage the Azure Pricing Calculator to compare RI prices with pay-as-you-go rates and analyze the future benefits of the investment.
10. Use Savings Plans for dynamic workloads
Savings Plans offer flexibility for workloads that may change over time. Businesses can save up to 65% over pay-as-you-go pricing by committing to one- or three-year Savings Plans.
Unlike RIs, Azure Savings Plans automatically apply to eligible services across your Microsoft Azure infrastructure. While they’re easier to manage for diverse workloads, start with a small commitment and gradually increase it as you become more comfortable with your usage patterns.
11. Automate discount management
Automation is key to maximizing your cost optimization. And while Azure’s Cost Management platform and Advisor help bring cost-saving insights directly to you, acting on these recommendations is still a manual effort for your team. Usage optimization still includes tracking and executing cost-saving initiatives manually, instead you can use an autonomous discount management solution to automate your rate optimization efforts.
FinOps tools like ProsperOps autonomously monitor and blend your cloud discount instruments to maximize savings while minimizing risk. By removing the effort, latency, and risk associated with manually managing rigid, long-term discount instruments, ProsperOps simplifies cloud financial management for you.
12. Leverage Azure Hybrid Benefit
If you have existing Windows Server or SQL Server licenses, use Azure Hybrid Benefit to reduce your Azure costs and use your on-premises licenses in the cloud.
You can apply it to existing resources or activate it when creating new VMs or SQL databases. You can also use Azure Hybrid Benefit in combination with Reserved Instances for maximum savings.
13. Clean up idle/unused resources
Regularly audit your Microsoft Azure environment for orphaned or unused resources, including unattached disks, outdated snapshots, and unused IP addresses. Then create an Azure Policy that automatically deletes unattached disks after a certain period so you avoid accumulating storage costs for forgotten resources.
Use Azure Resource Graph to quickly identify resources that haven’t been used in a while and create queries to find VMs with low CPU usage or storage accounts with no recent transactions.
14. Control costs with Azure Policy
Azure Policy is a powerful tool for enforcing cost-saving rules and standards across your Azure resources. By setting up policies that govern resource deployment and usage, you ensure your environment stays within budgetary limits and follows organizational best practices.
Azure Policy also allows you to prevent the creation of non-compliant resources, such as oversized virtual machines or untagged assets, which can lead to unexpected cost spikes. You can use it to enforce tagging policies for resource tracking, set spending limits, and restrict the use of premium services where unnecessary.
15. Foster a FinOps culture
In the State of FinOps 2024 report by the FinOps Foundation, 49% of organizations identified better team alignment as the key to reducing cloud waste for 2024. Since FinOps focuses on fostering collaboration between finance, IT, and operations, it’s essential to promote strong teamwork across these departments to achieve effective cloud financial management.
Hold regular cost reviews where teams discuss spending trends and optimization opportunities, and make cost data accessible to all relevant stakeholders. Recognize your employees for cost-saving initiatives or tying cloud efficiency to performance metrics.
FinOps culture is a mindset of continuous improvement. So, you should regularly assess cloud spending practices, identify areas for optimization, and implement changes that promote cost ownership among the teams.
3 Powerful Tools for Microsoft Azure Cost Optimization
The good news is that you don’t have to implement all of these strategies and best practices manually. There are various native and third-party cloud cost intelligence tools that deliver ongoing optimization and recommendations with little to no manual input required.
Here are the three top solutions we recommend to streamline your Azure cost optimization:
ProsperOps
ProsperOps is a cloud rate optimization platform that automatically helps you lower your cloud spending. It operates 24/7 in the background, autonomously adjusting your discount instruments and commitments to maximize your savings. We optimize the hyperscaler’s native discount instruments to reduce your cloud spend and place you in the 98th percentile of FinOps teams.
ProsperOps also provides detailed financial insights that go beyond basic cost tracking. The platform measures core optimization KPIs, including Effective Savings Rate, lifetime savings, spend coverage, Commitment Lock-In Risk, and more.
CloudZero
CloudZero is a cloud cost intelligence platform designed to optimize cloud spending and drive efficient engineering. The platform offers Kubernetes visibility, budget management, and AI-powered anomaly detection to help your business manage and predict costs.
You can achieve significant cost savings (up to 22%, on average), improved cloud efficiency, and the ability to allocate 100% of cloud spend accurately. CloudZero’s fixed pricing model ensures predictable costs, even during spending spikes.
Microsoft Cost Management and Billing
Microsoft Cost Management is available at no extra cost for Azure users. It delivers continuous monitoring and reporting, customizable budgets and alerts, and AI-powered insights for cost forecasting and optimization.
You also get amazing built-in security. The platform integrates with Azure Advisor to provide tailored recommendations for cost savings, such as right-sizing and removing idle resources. It doesn’t just make it easier for Microsoft Azure users to reconcile their cloud spending, it creates a comprehensive solution for monitoring, analyzing, and optimizing all Azure services using a single unified platform.
Automatically Optimize Azure Costs With ProsperOps
ProsperOps delivers cloud savings-as-a-service and leverages its Autonomous Discount Management platform to optimize Microsoft Azure’s native discounts to reduce your cloud spend and place you in the 98th percentile of FinOps teams.
Using machine learning algorithms and advanced data analytics, ProsperOps can continuously analyze your company’s Azure usage patterns to identify inefficiencies and autonomously manage a portfolio of commitments. With our Adaptive Laddering approach, we safely increase coverage while minimizing lock-in risk from commitments.
By blending your discount instruments, such as Azure Savings Plans, and Azure Reserved VM Instances, we help you maximize Effective Savings Rate while lowering Commitment Lock-in Risk. We remove the effort, latency, and lock-in risk associated with manually managing rigid, long-term commitments and fully automate cloud rate optimization for you.
With ProsperOps automation, there is no impact on engineering. Our platform setup is quick, and our systems work behind the scenes to optimize your cloud costs. This allows your teams to concentrate on innovation and growth while we automate cloud cost optimization for you.
To see ProsperOps in action, book a demo today.
