Optimizing AWS Costs with Effective Savings Rate and ProsperOps AI-Powered Automation

By Grace Gui, Product Marketing Manager – ProsperOps
By Jason Janiak, Partner Solutions Architect – AWS

ProsperOps

Coverage and utilization metrics can be misleading and do not always tell the full story when it comes to managing commitments and measuring their impact. Effective Savings Rate (ESR) is an objective FinOps metric that measures your true ROI.

In this blog post, we will discuss challenges with coverage and utilization, why ESR is important, benchmarking insights, and how automation with ProsperOps can help. As an AWS Advanced Technology Partner and AWS Marketplace Seller, ProsperOps helps AWS customers optimize rates and achieve cost reduction outcomes using automated commitment management.

Challenges with using utilization and coverage metrics

To reduce costs by optimizing price, AWS customers use AWS Savings Plans and AWS Reserved Instances for a commitment of 1 or 3 years. Some may have special pricing agreements with AWS via Enterprise Agreements. Traditionally, coverage (resources covered by commitments) and utilization (commitments used) were metrics used to make commitment decisions. However, higher utilization or coverage does not always lead to more savings.

People often equate high utilization or coverage with high savings, but to truly maximize savings, the focus should be on a metric that directly correlates with savings, such as the Effective Savings Rate (ESR). Effective Savings Rate is the ultimate metric for understanding your actual savings rate across your entire footprint, accounting for all changes and discount variations in Reserved Instances and Savings Plans.

Higher utilization doesn’t guarantee better outcomes if coverage isn’t optimized, and vice versa. Committing conservatively leads to missed savings, while committing aggressively leads to wasted spend when usage declines. While FinOps experts recommend considering coverage, utilization, and discount rate, balancing multiple metrics is challenging. Engineering choices, such as region, instance family, and operating system, also affect pricing. ESR simplifies managing commitments with a single metric that always correlates with cost savings.

Why use Effective Savings Rate (ESR)

How do you measure your cost savings outcomes? ESR is important because it helps you:

1. Understand your rate of return compared to running resources on-demand.
2. Track and benchmark against your baseline and industry peers.

Similar to ROI in personal investing, Effective Savings Rate (ESR) measures how well you manage commitments to generate cost savings. ESR combines utilization, coverage, and discount rates into a single metric, showing the percentage of cloud savings compared to on-demand spend. ESR is flexible and can be applied to overall AWS rate optimization or specific services.

Figure 1 – ESR

ESR, originally created by Erik Carlin, Chief Product Officer and Co-founder of ProsperOps, is now an industry metric adopted. It is part of the FinOps Foundations framework for the Rate Optimization capability, and if you are using the AWS Cost and Usage Reports Dashboard, you can find your ESR in the Summary Billing tab.

Example calculation illustrating how ESR works:

In environment A, you purchase three t3.small 1-year Amazon EC2 Standard Reserved Instances with a price of $0.0130/hr. Assume that all four Amazon EC2 Instances run for 100% of the time in a 30-day month. The on-demand price is $0.0208/hr. In environment B, conditions are the same, except you purchase six t3.small 1-year Amazon EC2 Standard Reserved Instances. What is the coverage, utilization, monthly savings, and ESR for each environment?

Higher ESR always indicates more savings, but higher coverage (or utilization) does not. Even though coverage is higher in B, there are two unutilized t3.small 1-year Amazon EC2 Standard Reserved Instances that contribute to lower monthly savings.

Benchmark your ESR results against industry peers

If your ESR is improving, how do you know your rank?

The 2024 ESR Benchmarking Report by ProsperOps, based on analysis of hundreds of AWS organizations, shows significant room for improvement in utilizing commitments:

1. 0% Median ESR – 50% of organizations had an ESR of 0% or lower for compute (Amazon EC2, AWS Lambda, AWS Fargate). This means they were missing out on savings and performed no better than paying on-demand rates. Even at 75th percentile, their ESR was only 23%.
2. Underutilization of Savings Plans and Reserved Instances – 53% don’t use Compute Savings Plans, EC2 Instance Savings Plans, Amazon EC2 Convertible Reserved Instances, or Amazon EC2 Standard Reserved Instances. While it once made sense to prioritize usage over rate optimization due to the inflexibility of commitments, advanced automation platforms, such as ProsperOps, enable simultaneous optimization of both usage and rates.
3. ESR correlation with magnitude of usage – ESR increases with compute usage. Larger organizations often have more mature FinOps practices and resources, focusing more on managing cloud costs.
4. Consistently high ESR is difficult to achieve – Manual methods alone make it hard to stay in the top percentiles. Dynamic usage but inflexible commitments make it challenging for organizations to achieve consistent cost savings.

ProsperOps automation maximizes your ESR

Optimizing ESR with automation is more effective versus traditional DIY or manual approaches to rate optimization.

• Relying on human internal processes can cause delays in taking action, leading to suboptimal cost savings.
• Managing commitments manually is complex when usage is elastic but commitments are inelastic. You are at risk of overcommitment and wasting spend when usage declines.
• Commitment targets may not be accurate because forecasted usage does not always align with actual usage.
• As your organization scales with dynamic usage and multiple AWS accounts, managing and planning commitments manually becomes increasingly challenging.

ProsperOps, a leading FinOps automation platform, automates these challenges and manages AWS commitments across services, such as Amazon EC2, AWS Lambda, AWS Fargate, Amazon Relational Database Service (Amazon RDS), Amazon Redshift, OpenSearch, Amazon ElastiCache, Amazon MemoryDB and more.

Key benefits from using ProsperOps:

1. Achieve maximized ESR – ProsperOps places customers in the top percentile of FinOps teams. Its algorithms dynamically adjust commitments to usage in real-time without relying on forecasted data.
2. Reduce costs and minimize commitment risk – ProsperOps makes commitments flexible when usage declines, mitigating risk from unutilized commitments and helping you avoid being locked into large 1- or 3-year commitments.
3. Offload work – ProsperOps continuously optimizes for higher ESR and monitors resource changes, so you can focus on other FinOps work.
4. Contextualized automation – Control settings that govern ProsperOps automation based on your organization’s needs, including coverage bounds and more.

The diagram below contrasts the suboptimal financial outcomes of a manual/ DIY approach with ProsperOps, where commitments adapt to changes in usage.

Figure 2 – Commitment Management

Hundreds of customers trust ProsperOps to help them maximize their ESR and cost savings. Drift increased their compute ESR from 24.1% to 48.4%, placing them in the top 2 percentile compared to industry peers in only a few months with ProsperOps. Since then, they have also leveraged ProsperOps to manage their RDS commitments, taking more work off their plate.

“The peace of mind of having our AWS discounts well automated is big. Now we have a better RI strategy and a significantly improved discount rate without all of the engineering effort,” says Matt Jackson, SRE Manager at Drift, a Salesloft company.

Figure 3 – ESR Performance

Conclusion

ESR is a single metric that measures the ROI from using commitments, and you can calculate via this free ESR calculator. ESR consistently aligns with cost savings, unlike utilization, coverage, and discount rate. Managing commitments manually is complex and can lead to suboptimal results. ProsperOps automation helps organizations maximize their ESR.

You can learn more about ProsperOps on AWS marketplaces and schedule a call with their FinOps experts to get a free cloud savings analysis.

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ProsperOps – AWS Partner Spotlight

ProsperOps is an AWS Advanced Technology Partner and AWS Cloud Ops Competency Partner ProsperOps was built around ESR to help AWS customers optimize rates and achieve cost reduction outcomes using automated commitment management. Over 65% of customers double their ESR with ProsperOps, which manages over $2B of annual cloud spend on AWS. ProsperOps is a FinOps Certified Platform and a founding Premier member of the FinOps Foundation, the official community for FinOps practitioners.

Contact ProsperOps | Partner Overview | AWS Marketplace