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Aligning engineering and finance is vital to organizational success and profitability. Alignment starts by improving cloud cost visibility.
Finance and engineering both thrive on efficiency. So when companies realize they’re wasting cloud spend, but aren’t sure where or how, both teams become frustrated. It’s remarkable how common this scenario is, particularly in the past five years.
Before the pandemic, Gartner reported companies wasted over $14 billion in 2019 on cloud services. During the height of the pandemic and cloud adoption spurt in 2020, IDG reported that 70% of US businesses overspent by as much as 62%. Additionally, the survey results suggested that companies wasted around 35% of their cloud spend.
Even a small percentage of wasted spend, let alone 35%, can eat into your margins. The issue can even worsen as your company grows as gross margins don’t improve with scale — as many companies assume.
While you can usually fix a single overrun, unraveling and fixing years of architectural decisions can be complicated, time-consuming, and costly. The result can mean finance missing gross margin improvements and engineering not having the budget they need to create competitive and helpful features.
So, what can you do? Start by uprooting the disconnect between engineering and finance.
In a 2019 study, research found that 57% of engineering and finance professionals were concerned about managing cloud spend. Yet, 45% of those respondents said they still didn't do anything about it in fear of hindering innovation.
Much of the problem can be attributed to a disconnect between engineering and finance. While only 37% of engineers said they were aware of out-of-control cloud spending, 57% of finance professionals were painfully aware.
Additionally, the study found that formal reporting between engineering and finance was limited, with only 28% of respondents saying that this type of collaboration happens within their organization.
CloudZero's VP of Engineering, Bill Buckley, sees the disconnect, too.
“Teams often plan on different time scales — engineering is planning out in months or a quarter or two, finance often wants to plan a year or two out,” says Bill.
“Engineering teams are often not watching past spend trends closely enough to answer questions from finance about why a cloud bill wasn’t what they expected,” Bill continues.
Modeling is also challenging, especially because cloud costs are variable and difficult to predict. Finance understands that it’s hard but still wants nice models for how an input X will change the cost Y. Engineering often doesn’t know the financial relationship between X and Y, so it’s hard to give finance the cost answers they need.
Finance may also not understand the technical details of how throttling cloud budgets can negatively affect service delivery. Engineers know. But they often lack an effective cloud cost solution to clearly illustrate where, why, and how money is being spent.
Keeping systems running smoothly, minimizing downtime, and fostering continuous software improvement is the priority for engineers.
If finance doesn’t know how much their organization spends on a product, customer, or another business unit, they have no basis for determining if they are charging enough to support the organization’s profitability.
However, there is a better way. Engineering and finance can use cloud cost intelligence to align software engineering decisions with business objectives.
Nothing makes finance teams’ blood turn cold faster than a sudden AWS bill increase. They know this could spell potential margin loss. Thinner margins can mean the company won’t be able to fund critical investments at times of rapid growth or remain profitable when growth slows.
Likewise, engineers desire the freedom to focus on improving products and services instead of being bogged down by overspending concerns.
How can you ensure that engineering and finance teams collaborate effectively, especially on cloud costs?
“We use our own platform to watch spend, but to also better understand how inputs to our system, such as new features and new customers, change the cost of the system,” says Bill on how CloudZero empowers its engineers and finance people to tell how their activities impact the entire company.
Several other ways can help your finance and engineering teams work together more effectively. Here are five of the best.
Establish a central resource for the most critical cost metrics both engineers and finance need. KPIs can include SaaS cost of goods sold (COGS), research and development (R&D) spending, or testing new features.
Discuss with both teams the metrics they deem crucial to their cloud cost visibility.
Meetings may need to be as frequent as once a week at first. Work together during this time to improve the metrics you collect, your modeling, and the steps to take when there are actual or potential cost anomalies.
Once you have clear procedures in place and an appreciation of what the other team considers important, you can meet on a regular basis. CloudZero meets once a month, but teams can choose whatever time frame makes sense for them.
Bill Buckley recommends that you actively observe how your inputs change and how your outputs follow. Can this learning tell you anything about the kinds of models you'll need to create in the future?
Say, for example, that a large number of enterprise customers joined your company last month. How did that increase affect your unit cost?
With cost visibility, you should be able to see how this increase in customers affects your cloud spend but also how it affects your cost per customer, which can help you ensure you are able to serve these new customers profitably.
Finance wants to know where they are investing money and why. They also want to know what the potential ROI might be.
Engineers with the right tools can connect the dots between their cloud spend on AWS to specific products and features. When engineers know where and how to look, they can correlate costs with specific events.
Suppose you're deploying.
The black bar above illustrates the exact moment when engineering began deployment and the blue chart shows cost overtime. Here, we can see that costs spiked after a deployment. The fourth bar shows a deployment followed by a spike before costs leveled off.
With a cloud cost intelligence platform, engineers and finance professionals can easily understand how an event affects the organization's cloud spend. An event can range from an enterprise customer onboarding to the rollout of a new feature in your software.
Finance and engineering may have trouble deciphering an AWS bill, especially if they only rely on Cloudwatch. A simple cost visualization tool does not show you important metrics in the context of your business.
For example, you cannot use it to estimate the cost of onboarding a single customer or creating a new feature. So, you might not be able to predict how much a similar project will cost you in the future.
Using cloud cost intelligence, you can identify historical patterns which reveal the average costs of providing a service. That way, both engineers and finance teams can tell how cloud spend may change over time, know a reasonable amount to allocate projects, and avoid going over budget.
It is vital that your finance team is aware of cost overruns before it’s too late. Otherwise, you risk wasting thousands of dollars. Using a platform that detects cost spikes and automatically notifies the teams responsible, allows engineers to immediately address the issue.
Having a tool that also sends both engineering and finance weekly reports of how costs are evolving, will allow you to see where you are and how your costs might change as you add new features, onboard new customers, etc.
Cost visibility is often a major sticking point between engineering and finance. Both teams are fully capable of addressing cost issues. Yet, they cannot optimize cloud spend if they don’t know where and how overruns are happening.
Organizations must be able to not only see how much they spend on their AWS bill, but also how cloud spend correlates to the business metrics they care about (i.e., features, products, customers, and more)
That is why CloudZero’s cloud cost intelligence platform empowers organizations with rich cost metrics that help engineering and finance speak the same language.
CloudZero enables teams to correlate cloud spend to metrics such as cost per customer, feature, product, dev team, environment, and more. Additionally, CloudZero’s cost anomaly alerts help engineering teams to quickly identify cost runs and address any code issues before wasting thousands of dollars — something that finance will be very happy about.
CloudZero is the only solution that enables you to allocate 100% of your spend in hours — so you can align everyone around cost dimensions that matter to your business.