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April 7, 2022 | 1 min read
AWS Savings Explained
Kaveh Khorram

Kaveh Khorram

CEO, Usage AI

Kaveh is the Founder and CEO of

AWS has three main billing modes:

  1. On-Demand
  2. Spot
  3. Reserved

Traditionally, companies have to optimize between flexibility and cost savings when using AWS; each savings mode has its pros and cons. With Usage, you can get the best from each mode with none of the downside. Because Usage’s optimizations are at the billing layer of AWS (Usage optimizes On-Demand and Reserved Modes), you don’t need to rewrite application logic, or worry about any downtime.

Here’s what the conventional billing modes with AWS look like

Spot Mode

Spot Mode gives customers the greatest possible savings-- up to 90% off -- but often requires engineering work at the architecture level to get savings (as instances can be shut-off by Amazon with only 120 seconds of notice).

On-Demand Mode

On-Demand Mode gives customers the greatest flexibility, but with the highest cost: the instance is billed at the highest possible rate when on, but can be turned off instantly to pause billing.

  • Savings Plans (SP) afford more flexibility in allowing customers to move regions and instance families while retaining savings. For this flexibility, savings are slightly reduced, and there’s no way of exiting the term early.
  • Reserved Instances (RI) require committing to a specific region and instance family, but yield greater savings. You’re locked in for 1-3 years, but have the option of selling the reservation back if you’re able to find a buyer through the marketplace.
  • In contrast, Savings Plans have no market, and there is zero chance of exiting the term early.

Reserved Mode offers an in between of On-Demand Mode’s flexibility and Spot Mode’s savings.

Reserved Mode

Reserved Mode offers a sweet spot for customers seeking something between the flexibility of On-Demand and the cost effectiveness of Spot. It requires zero engineering rework and is zero-downtime: you can obtain savings without moving any servers.

  • Savings Plans can yield up to a 50% cost reduction for a 3-year no-upfront commitment, but you’ll need to commit to paying a certain $ / hour amount for every hour for the next 3 years.
  • If you overprovision your Savings Plan, you’ll lose money.
  • If you underprovision, you’ll be missing out on savings.
  • You can also go for a shorter-term 1-year no-upfront commitment, but then your savings lower to 27% and you’ll still face the same issues if you over- or under-provision.
  • The upside is that you don’t need to commit to a single instance family or region: it will automatically apply the savings to any instance family and any region for as long as there’s enough spend.
  • So you can move your servers to different regions, right-size them to different instance families, and you’ll still save money.
  • Reserved Instances can yield up to a 57% cost reduction for a 3-year no-upfront commitment.
  • With reservations, you get greater savings but less flexibility when compared to Savings Plans because you have to specify a specific region and instance family.
  • Change instance families or regions and you’ll lose the ability to utilize that reserved instance. However, Reserved Instances come with the EC2 Standard Reserved Instance marketplace which lets AWS customers try and sell their reservations to other AWS customers prior to the end of the term. If you’re able to sell your reservations, you actually get more flexibility than Savings Plans since you have the option of exiting the term early.

Both AWS On-Demand and AWS Reserved billing modes have their pros and cons. We work with customers to blend these two modes to yield significant savings while getting the best of both worlds.

With potentially billions of different pricing scenarios for a customer, finding the right balance within a given billing mode’s options, across at least 200 instances, between Reserved Instances and Savings Plan, is no trivial task

Enter Usage AI: Usage automatically scans your instances, crunches through all combinations to find you the most optimal discounts, and automates the entire process of buying and selling your reservations for you, automatically.

To take it a step further, Usage AI uses 3-year no-upfront commitment RIs to get you the greatest possible marketplace discount of 57% and bundles it with guaranteed buyback. So you can rest assured that if your compute needs change in the future, Usage AI will automatically buy-back your old commitments and buy you new commitments.

Kaveh Khorram

Kaveh Khorram

CEO, Usage AI

Kaveh is the Founder and CEO of
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