Mastering AWS EC2 Cost Optimization: New Method and Simple Strategies

December 5, 2023
min read
Cloud Optimization

Welcome to our guide on optimizing Amazon EC2 costs. Whether you're new to AWS EC2 management or an expert, this article is packed with useful tips for everyone. We'll cover key strategies for AWS EC2 cost optimization, including some lesser-known ways to cut costs. Our focus is on practical, easy-to-implement advice that will help you save on AWS EC2 costs effectively.

Get ready to explore methods that can lead to significant reductions in your expenses.

Understanding EC2 Services

Let's take a quick look at the fundamental services within Amazon EC2 before we dive into cost optimization strategies. A thorough understanding of these services is a vital step towards effective cost management.

EC2 Instances: Consider these as the pillars of EC2. They are essentially virtual servers designed to cater to your applications and workloads. You'll find a wide range of instances, each customized to suit particular performance requirements.

Elastic IP Addresses (EIP): These are static IPv4 addresses specifically for the dynamic environment of cloud computing. Quite conveniently, EIPs enable you to rapidly re-assign addresses across various instances in your account. This rerouting makes it super easy to configure high availability for your services.

Elastic Block Store (EBS): This is a block-level storage volume that you can pair with your compute workload (EC2 instances, databases, containers, etc) to ensure optimal performance for your workloads. Importantly, EBS maintains the persistence of your data regardless of the state of the computing unit that it’s attached to.

Load Balancers: Load balancers can automatically distribute incoming traffic across multiple EC2 instances. By directing traffic only to functioning instances, Load Balancers are for fault tolerance and ongoing application availability.

Auto Scaling Groups: ASGs automatically modify the number of active EC2 instances according to demand variations. Auto Scaling groups assure peak performance during high-demand periods by adding more instances and automatically scaling up and down the number of instances based on configurable criteria.

How Does the Pricing Work?

Before delving into the intricacies of AWS EC2 pricing strategies, let's first unravel the fundamentals of how the pricing structure operates. Understanding the baseline mechanisms is key to navigating the landscape of AWS EC2 costs effectively.

Let's explore how the pricing works in the first place.

Amazon EC2 Pricing Models: Choosing the Best for Your Needs

  1. Free Tier: Start with AWS EC2 at no cost with the AWS Free Tier. It includes 750 hours monthly of Linux and Windows t2.micro or t3.micro instances for a year. This is a great way to save on EC2 costs for new users. Just stick to micro instances to remain within the Free Tier.
  2. On-Demand Instances: This model allows you to pay for computing capacity by an hour or second, ideal for those who need flexible, short-term solutions. It's a practical option for AWS EC2 cost optimization and paying only for what you use.
  3. Savings Plans: With Savings Plans, commit to a consistent usage level and enjoy reduced rates, leading to significant cost-saving opportunities. These plans are suitable for users who can predict their usage over one or three years, offering savings of up to 72%.
  4. Spot Instances: Take advantage of up to 90% discounts with Spot Instances, which use Amazon's excess capacity. They're an excellent choice for tasks where the reduction in costs is a priority, but keep in mind their availability and reliability can vary.
  5. Reserved Instances (RI): For long-term savings, Reserved Instances offer up to 75% off compared to On-Demand pricing. This option is ideal for estimating the EC2 cost over a fixed period, with the choice to pay upfront for even more savings.

Optimizing Costs with AMD and Graviton Processors in AWS EC2

Both AMD and Graviton processors deliver notable cost reductions, making them a smart choice for optimizing your cloud infrastructure expenses.

  • AMD EPYC Processors: By using AMD EPYC processors in EC2 instances, you can achieve up to 10% cost savings. These processors are ideal for workloads that don't always need full performance, making them a smart choice for EC2 cost optimization. Look for these in compute-optimized (C5a), general purpose (M5a), burstable (T3a), and memory-optimized (R5a) families.
  • AWS Graviton Processors: Switch to AWS Graviton processors for up to 20% lower costs compared to similar x86 instances. These processors excel in price performance for various cloud workloads, available in general purpose (M6g), compute-optimized (C6g), and memory-optimized (R6g) EC2 instances. They offer up to 40% better cloud performance and about 30% cost reduction for larger types while being up to 60% more energy-efficient. Their ARM architecture ensures optimal performance and broad AWS service compatibility. Best for M, R, and C instance types larger than medium.


If your application is not optimized or compatible with the AWS Graviton family processors, it might not run as well due to the CPU architecture difference.

You can delve deeper into instances by following these links:

Optimize AWS EC2 Costs with Auto Scaling Groups

Auto Scaling Groups (ASG) automatically adjusts and manages clusters, ensuring resources match demand, which is crucial for AWS EC2 cost optimization.

Key Features of AWS Auto Scaling:

  • Flexible Capacity Management: Adjusts your group's size based on set capacity, responding to demand changes.
  • Cost-Effectiveness: AWS Auto Scaling Groups is free, charging only for the resources your applications use, plus any Amazon CloudWatch fees.
  • Scaling Strategies: Offers various strategies to align capacity with real-time needs, reducing resource waste.

Tips for Cost Optimization in Auto Scaling Groups:

  • Use Scaling Policies: Create policies for scaling resources based on demand, like adjusting instances according to CPU usage, to ensure efficient use.
  • Scheduled Actions for Predictable Workloads: For workloads with known patterns, schedule actions to scale resources in anticipation of high or low-demand periods.
  • Monitor and Adjust: Begin with small policies, monitor their effects, and adjust as needed to maintain stability and avoid excess.
  • Balanced Scaling Approach: Scale up swiftly for demand spikes and down gradually to maintain resource efficiency.

By implementing these strategies in your Auto Scaling setup, you can significantly cut on AWS EC2, particularly for large or fluctuating workloads. Fine-tuning your Auto Scaling can strike the right balance between cost efficiency and meeting application capacity needs.

Maximizing Cost Efficiency with AWS Spot Fleet

Short about Spot instances: Amazon EC2 Spot Instances allow to take advantage of unused EC2 capacity in the AWS cloud and are available at up to a 90% discount compared to On-Demand prices. The trade-off is that AWS doesn’t guarantee the availability of Spot instances and can take those back anytime.

Note: You should think twice before putting a production workload on Spot instances. However, Spot instances are an ideal and cost-effective choice for non-business critical workloads.

Spot Fleet in AWS is a versatile method that configures various EC2 instance types and purchase options, including on-demand, reserved, and spot instances. It allows you to blend different pricing models for optimal cost efficiency. For example, you can combine on-demand instances for critical tasks with spot instances for less urgent work that can handle interruptions. Spot Fleet also lets you prioritize instance types and select preferred Availability Zones.

Spot Fleet Requests help you strategically deploy instances (on-demand, reserved, or spot) to meet capacity needs effectively. There are two types of requests:

  1. Request Type: A one-time request that doesn't replace lost capacity from Spot interruptions or seek alternative pools if initial capacity isn't available.
  2. Maintain Type: This option requests and maintains your desired capacity by replacing interrupted Spot Instances.

Learn how to create a Spot Fleet by following this link.

Using Spot Fleets is a strategic way to cut on Amazon EC2 costs, leveraging spot instances for savings while ensuring access to other types for reliability and performance.

Embrace Spot Instances, Savings Plans, and Reserved Instances for Significant AWS EC2 Cost Savings

Spot Instances

Spot Instances are particularly useful in scenarios such as:

  • Tasks that can handle interruptions, like batch processing or background activities.
  • Workloads that can tolerate temporary disruptions, not requiring constant availability.
  • Flexible projects where cost efficiency is more important than continuous service, such as specific data analysis tasks or non-urgent computing jobs.
  • Use cases like big data processing, containerized jobs, CI/CD pipelines, and development or testing environments.

These instances provide a cost-effective alternative to on-demand options, suitable for situations where a short notice period before termination is manageable. AWS also allows for the purchase of guaranteed Spot Instance usage for one to six hours, offering discounts of 30 to 50%. This feature helps balance cost savings with operational stability.

Reserved Instances

By reserving an instance for 1 to 3 years, you can have a significant discount, up to 72% less than On-Demand Instance pricing. This approach is particularly beneficial for:

  • Running a continuous, essential service such as a 24/7 gaming server that needs to be operational around the clock to serve players worldwide.
  • Scenarios with a clear, long-term need, for instance, align with a strategic approach to EC2 cost optimization.
  • Situations with a steady, predictable workload, making the most of the cost-saving potential of Reserved Instances.

Explore opportunities in the Reserved Instance Marketplace to buy or sell unused Reserved Instance credits, a smart move for AWS EC2 cost management.

Compute Savings Plans

Compute Savings Plans offer another avenue for EC2 cost saving, with potential savings of up to 66%. They are especially useful for:

  • Environments requiring frequent changes between different EC2 instance types, regions, or using various AWS services.
  • Businesses committing to a specific usage level for 1 or 3 years seek flexibility to adapt their technology stack as their requirements evolve.
  • Growing businesses whose usage patterns are likely to change, offer a way to adapt usage without incurring additional costs.

These plans provide a versatile approach to managing and optimizing AWS EC2 costs, accommodating a wide range of use cases from shifting workloads to adapting to business growth.

Pocket Tips for EC2: Small Reminders for Big Cost Savings

When it comes to managing your EC2 instances effectively and optimizing costs, consider the following tips:

1. Beware of EBS and EIP Costs

Elastic Block Store (EBS) and Elastic IP (EIP) can introduce additional expenses.

  • Unused or unattached EBS volumes continue to incur charges based on their allocated size, regardless of actual usage.
  • While the first Elastic IP is free when attached to an active instance, any additional or unattached EIPs will lead to extra charges.
  • Regularly reviewing and managing these resources is crucial to avoiding unnecessary costs in your AWS environment.

2. Utilize Latest Instance Types

  • Choosing the latest instance generations can lead to significant EC2 cost savings.
  • Compare the differences between instance generations, as prices typically decrease with each new release.
  • For instance, transitioning from M3 to M5 generation can result in savings of up to 27.8% per hour.
  • While upgrading requires effort, it's a strategic move for long-term EC2 cost optimization.

Implementing these strategies can lead to more efficient management of your EC2 instances and help in optimizing your overall AWS costs. These small reminders can lead to big savings, ensuring your cloud infrastructure is both cost-effective and high-performing.

Enhance Your EC2 Savings with Cloudchipr

No one likes to spend more than they need. It's particularly frustrating when you're dealing with AWS EC2 spending, and you discover overlooked areas where money is trickling away. Here are a few culprits:

  • Non-Production Instances Being Active Unnecessarily
  • Idle and Unused Resources
  • Instances in Use, but Not Utilized Fully

You're probably thinking, how can I be more strategic here?

Proactive Management Techniques

Here's the good news: effective money-saving action steps exist:

  1. Starting and halting instances manually on the AWS Console or through the AWS API is a simple yet effective EC2 cost-saving tactic. This can be automated with AWS Lambda or EventBridge along with custom scripts, or with no-code automation tools like Cloudchipr.
  2. And don't forget about cost allocation tags! They're invaluable when it comes to monitoring and managing your budget via the AWS Cost Explorer. Make sure to enable all the tags in your organizational tagging policy in the AWS cost allocation Tags section.

A More Streamlined Solution

Perhaps you're looking for an easier way to automate your organizational cost hygiene. You're in luck: Meet Cloudchipr (YC W23).

Cloudchipr is not just a cloud cost optimization tool; it's a comprehensive, cloud-agnostic solution built to automate the overall cloud cost reporting and saving. Tired of spending your engineering team’s time implementing and maintaining custom scripts? No worries! Drop all those automations that everyone loves to hate and automate them with Cloudchipr’s UI in 5 minutes. Cloudchipr offers support for numerous services across major cloud platforms such as AWS, Azure, and Google Cloud Platform (GCP). But in this article, our spotlight is on how Cloudchipr can help you with your AWS EC2 cost optimization. Operating on the core FinOps principles of Inform, Optimize, and Operate, Cloudchipr provides a unified approach to cloud cost management irrespective of the cloud service provider.

No matter the size of your monthly cloud bill, you're invited to kickstart your cost-saving journey with a 14-day free trial from Cloudchipr. Discover and experiment on your own! Free FinOps consultancy is included.

Let's dive right into a few examples:


Once you connect your cloud accounts to Cloudchipr and specify the access type, either read-only or read/write, you gain the ability to explore all your resources through the Resource Explorer. This brings you great visibility into all resources in all your Clouds. You can create various views and dashboards to distribute cloud cost accountability across your organization. With the help of filters, you can view and analyze your resources by service type, region, charge type, product family, CPU Load, Network In/Out traffic, TAGs, and many other criteria.


Cloudchipr offers methods and tools specifically designed to enhance cloud cost and usage efficiency. A prime example is our EC2 Service management feature, which demonstrates one-click simplicity for comprehensive insight. You gain immediate access to a wide range of billing details, from Instances to EIP, Load Balancers, ASGs, EBS volumes, and EBS snapshots.

For a clearer understanding, here are some screenshots.

Now let's dive deeper into the details of the Instance section for a clearer understanding.

Dealing with Underutilized Instances

The instances section may look familiar to the ones shown in the previous examples, but did you know that there's more to explore?

Simply by clicking on the lightbulb icon, you are conveniently redirected to the 'Rightsizing recommendations' page, a treasure trove of information to help you optimize Amazon EC2 costs.

Cloudchipr examines the CPU utilization of your machines and suggests alternative instance options. Moreover, it gives you an estimated projection of the savings you could achieve.

Noteworthy Point

In its current version, Cloudchipr's suggestions are based on CPU utilization.

Furthermore, you have the option to enhance your Cloudchipr usage by integrating it with Slack, Jira, and other tools to use in automation workloads.


The 'Operate' principle in FinOps focuses on the efficient operation and management of cloud resources. It emphasizes the importance of active management and real-time decision-making to optimize Amazon EC2 costs. This involves monitoring, adjusting, and continually improving the use of cloud resources based on usage patterns and business needs.

Non-production Instances Running Unnecessarily

Why keep your non-critical instances running around the clock when you can customize their operation based on your daily or weekly requirements? By scheduling Off hours during nights and weekends, you can save up to 70% on your development workload costs. It's as easy as a few simple clicks.

Unused and Idle Resources

Within a busy workflow, it's easy for a test instance to be launched and left running, which can lead to unnecessary expenses. This can significantly increase the costs especially when there are dozens of engineers using your clouds every day. Cloudchipr's efficient tagging system can effectively solve this issue. It automatically locates the underutilized instances and allows backup and deactivation of those.

Consider the example below; it illustrates a filter that displays all instances launched more than five days ago, where the maximum CPU utilization was less than 5% since the second day.

You can choose from a wide array of filters such as Launch time, CPU, Network, Created by, Instance type, Instance family, State, Tags, and many more. The same can be done for EBS volumes, ASGs, Load Balancers, IP addresses, etc.


In this guide, we've journeyed through various strategies essential for AWS EC2 cost optimization. From delving into different pricing models such as On-Demand, Reserved Instances, and Spot Instances, to leveraging the efficiencies of AMD and Graviton processors. We've also looked at how Auto Scaling Groups can streamline operations, the advantages of AWS Spot Fleet, and the benefits of adopting the latest instance types. Lastly, we discussed the role of innovative tools like Cloudchipr in enhancing cost optimization efforts.

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