How to Calculate Public Cloud Costs for Your Business

The formula for how to calculate cloud costs has more variables than simple computing power, storage, and network concerns

When a developer builds a new apartment building, they connect it to local utilities without a second thought. Whether it’s Pacific Gas & Electric on the West Coast or Con Edison on the East, these providers are so much more efficient than any alternative that there’s no question of cost, let alone of trying to generate power and gas independently. Many businesses think of the public cloud in the same way, never bothering to learn how to calculate cloud costs.

Although the public cloud aims to work like other utilities, the truth is that it’s nowhere near that efficient. Infrastructure costs are only the beginning; the hidden costs can turn a relatively small commitment into a behemoth investment. So before your business spends past the point of no return, let’s take a more holistic view of what moving to the public cloud costs.

How to Calculate Cloud Costs: Compute, Storage, and Networking

At first, understanding cloud costs seems as simple as any other IT infrastructure investment. After all, they share the same three basic components. Your costs will break down across compute, storage, and networking fees. How much processing power do you need from virtual machines? How much cloud storage space will you use? And what will it cost to keep your systems in contact with one another?

Answering these questions starts with examining historical data. For example, what quantity of compute power has brought your business to where it is today? Next, you can consider your growth projections. After all, the bigger your company grows, the more it will require of all three components. Look at how your demand for each has developed and use that to extrapolate forward.

When doing this work for on-premises cloud infrastructure, you can treat these costs as capital investments and amortize them over several years. That makes them a simple, predictable recurring cost for budgeting. With the public cloud, the thinking goes, you can just monitor your costs and scale up or down as needed. You’ll need to watch for ever-changing costs based on your usage and on potential rate changes set by your provider, which makes accounting a little trickier. But there are a lot of costs you’ll run into long before you even face that challenge.

How Migrating Adds to Public Cloud Costs

If you’re considering a shift to the public cloud, you’re probably thinking something along the lines of “Well, we’re not data center experts. Someone else can probably run one for us better than we can ourselves.” That may be true. But here’s the first wrinkle: You have to actually move your apps and data to the cloud. That’s not an overnight process — in fact, it has an enormous cost in terms of working hours.

Throughout the migration, you’ll have to run two separate environments. Those two environments may use different operating systems or hypervisors. That means you’ll have to pay for and keep track of two differently priced environments for the length of the migration. Your employees will be forced to split their time between the two, and any software you use to manage the two environments will raise the overall cost of the migration.

Refactoring: How Much Time Invested Is Too Much?

When you move to the public cloud, you must decide whether to refactor your apps to make them “cloud native.” Doing so is a little like cleaning out a computer you’ve used for many years. Over that time, it’s accumulated thousands of files, most of which you probably never use. Your computer might run more smoothly if you went in and deleted all those useless files. But doing so would take a lot of work, and the computer works well enough as is. Is that work worthwhile?

That’s refactoring for the cloud in a nutshell. It lets you benefit from the additional efficiencies of the public cloud, but the upfront costs in terms of labor are immense. Most companies expect to get the efficiency bonuses of the cloud without doing this work, and they wind up blindsided by it in the middle of a migration. As business leaders, we have to ask ourselves whether these time investments are worth the efficiencies they unlock down the line.

Furthermore, are they worth their immediate economic costs? All the time employees spend refactoring an app is time they aren’t using to innovate or produce new value. If you’re in business to make a profit, you need your employees working toward that goal rather than treading water.

The Cost of Being Wrong

If you commit to the public cloud only to find it doesn’t suit your business, you may find yourself in a serious scrape. If you haven’t refactored your apps, moving back to on-premises is going to be extremely expensive and time-consuming. If you have refactored, there’s no turning back. You’ve invested too much, and you’d have to spend even more to undo that work. This is why knowing how to calculate public cloud costs is so crucial; if you only start to worry about these issues mid-migration, it’s already too late.

Tracking Cloud Usage to Maintain Efficiency

When you use on-premises cloud infrastructure, your costs are mostly capital, though some are operational. They don’t change based on usage, so it doesn’t matter if you max out your capacity or forget to touch it at all.

In the public cloud, costs are based on usage. The more you use, the more you pay. And if you’re using the same amount of infrastructure in the public cloud as you were in your on-premises solution, you’re likely to see your costs roughly double.

Of course, the whole point of moving to the public cloud is to use only as much as you need. That way, at least in theory, you can pay a higher rate but still come out ahead. But achieving that level of efficiency isn’t as easy as it sounds. Cloud vendors don’t provide tools for monitoring usage versus capacity. The way they see it, if you’re paying for capacity that you don’t need, that’s your problem. 

Using third-party software such as NCM Cost Governance (formerly known as Beam) by Nutanix can help avoid overpaying. This solution tracks workloads in the public cloud and empowers you to spot inefficiencies. It can also compare the rate you pay with your vendor against what other vendors would charge you — and against what an on-prem solution would cost. Of course, changing cloud vendors means migrating your apps and data a second time, but at least you’ll know what you’re missing.

Let Roundstone Solutions Help

Some workloads make sense in the public cloud. Some make sense on-premises. Doing your due diligence, evaluating your options, projecting out costs for migrating and refactoring, and making only measured moves; there’s no better way to know for sure which cloud solution is the right one for your business than to do your homework. And there’s no one better to help than Roundstone Solutions. We’ve aided startups and enterprise businesses alike in getting the most out of their cloud use, and we’re ready to help you, too. Get in touch today to find out more.