The True Cost Of Cloud Computing Explained

It came as a pleasant surprise. CloudZero recently discovered over $1.7 million in annualized savings. And, all from our own infrastructure. Otherwise, we would have spent $1.7 million on cloud resources we didn’t actually need.

Cloud savings stories like this are common with CloudZero customers, and we often find companies spending more than they should in the cloud.

If your team is also struggling with managing and controlling the cost of cloud computing, then this guide is for you!

We’ll also cover how you can better forecast, budget, and optimize your cloud spend.

How Much Does Cloud Computing Cost?

It depends — but here’s a 2025 snapshot.

According to the Flexera 2026 State of the Cloud Report, enterprise cloud budgets continue to climb, with spending concentrated increasingly in the top tiers as more workloads migrate to or are born in the cloud. Hybrid cloud remains dominant at 73% of organizations, and dedicated FinOps teams have grown to 63% adoption.

A Harness “FinOps in Focus” report projects roughly $44.5 billion in infrastructure cloud waste globally, driven by a persistent disconnect between FinOps strategy and developer behavior. Flexera’s 2026 data puts the waste rate at 29% of IaaS and PaaS spend — a figure that has hovered between 27% and 32% since 2019.

Is that you, or are you shaking your head like that seems too little or too much for your current situation?

In that case, we have a surprisingly simple formula for calculating the cost of cloud computing (the actual, ongoing costs to expect):

Total Cloud Cost (TC) = Service You Select (S) x Unit Price You Pay (P) x Volume You Use (V)

Here’s a quick breakdown of these cloud cost factors.

Discover more about this cloud cost formula here.

When you really consider this approach, you can tell that exactly how much you pay for your cloud computing services will be very different from what another organization spends on the cloud — even if you are in the same vertical.

Then the next question becomes …

How Much Do Companies Spend On Cloud Computing Today?

Gartner forecast global public cloud end-user spending to reach $723.4 billion in 2025, up from $595.7 billion in 2024. For 2026, accelerating AI integration is projected to push public cloud services growth to 21.3%, placing total spending well above $870 billion. IaaS and PaaS continue to grow fastest at roughly 24.8% and 21.6% respectively. By 2027, Gartner expects 90% of organizations to operate hybrid cloud strategies.

Credit: Gartner’s forecast for public cloud Services end-user spending forecast, 2024-2025 (millions of U.S. dollars)

Yet, here’s the kicker about the cost of cloud computing.

CloudZero’s 2024 State of Cloud Cost Report underscores the visibility gap: 22% of organizations have no idea what their unit costs are, and nine out of ten respondents say low cost visibility directly affects their ability to meet cost goals.

More than 1,000 cloud engineering and finance professionals responded. And about half of all respondents said their cloud costs were higher than they should be, and a staggering 11% said their costs were way higher than expected.

Also, only 13% of the respondents said they had allocated at least 75% of their cloud costs.

A consequence of this cost blindspot is that organizations lose about 28% to 32% of the money they spend on the cloud to unnecessary bloat.

The waste happens in the form of:

A new category of waste is emerging rapidly: AI and GPU idle costs. As organizations spin up GPU instances for machine learning training and inference, idle GPU waste has become a high-dollar category that did not exist at meaningful scale even two years ago. CloudZero’s 2025 State of AI Costs research found that average monthly AI spend jumped 36% year-over-year to $85,500, yet only 51% of organizations can confidently evaluate the ROI of that spend.

Check out our straightforward guide to reducing cloud waste here to see ways to prevent overspending in your organization.

Is Cloud Computing Cost-Effective?

This is the question behind the question. Organizations searching for the cost of cloud computing often want to know whether the investment pays off — and the answer depends entirely on how well you manage what you buy.

Oracle Cloud’s Clay Magouyrk has claimed customers saved “30% to 50%” migrating to the cloud versus on-premises operations. An Office 365 survey reported average infrastructure cost savings of 20% for organizations that moved workloads to the cloud. These figures are directionally consistent with what most enterprises report during the first phase of cloud migration, when they are replacing aging on-premises hardware with elastic, utility-priced infrastructure.

But cost-effectiveness is not guaranteed. The well-documented case of 37signals leaving the cloud illustrates what happens when workloads are stable and predictable enough that owned hardware becomes cheaper at scale. For most organizations, however, the flexibility and speed gains of cloud outweigh the premium — as long as governance keeps pace with consumption.

Organizations using structured FinOps frameworks are 2.5x more likely to meet or exceed their cloud ROI expectations, and early adopters have reduced cloud waste by as much as 40%. Flexera’s 2026 report shows dedicated FinOps teams have climbed to 63% adoption, and Cloud Centers of Excellence (CCOEs) are now present at 71% of organizations. Cloud cost management has shifted from a reactive finance exercise to a proactive engineering discipline.

CloudZero’s philosophy captures this well: cloud optimization should involve pulling levers, not using scissors. The goal is reducing spend through unit cost optimization and architectural efficiency, not indiscriminate cuts that compromise performance or velocity.

What Influences The Cost Of Cloud Computing?

Cloud computing costs are based on three main factors:

1. Compute

This refers to the processing power, memory, and temporary storage you need to run workloads smoothly. Your cloud provider offers a range of compute instance types. Each offers a specific configuration of CPU, memory, and network capacity.

The vendor will include compute-optimized, memory-optimized, and general-purpose instance types. It may also include specialized hardware, like graphics acceleration or fast networking.

You pay for compute capacity based on the number and types of instances you use within a specific duration, say per hour.

2. Network connectivity

Network costs cover the capacity your applications need to communicate with users and with each other. Providers bill for data transfer out (egress) and, in some cases, data transfer in (ingress), measured in GB, TB, or PB. Additional charges apply for low-latency and high-bandwidth connectivity, static IP addresses, NAT gateways, and load balancers. A notable 2025-2026 shift: Google Cloud eliminated standard internet egress charges, while IPv4 address charges became a structural cost across all major providers.

3. Storage capacity

You’ll want different types of storage for your applications, from file and block storage to object storage. Your cloud provider offers these storage options as a service. You pay on a per GB per month basis for the elastic storage service.

If you choose a managed storage service, including managed disks paired with compute instances, you pay for the whole storage volume, regardless of how much capacity you use.

Now, here’s the thing. There will be costs that do not fit into any of these three categories. You may expect other expenses and even plan for them, but hidden charges still increase the cost of cloud computing.

What are the hidden costs of cloud computing?

Consider the following:

Data transfer fees

Different cloud service providers have different data transfer charges. Also, the rates vary by region. So, you pay more when you connect your servers to services in Regions/Availability Zones with higher rates. Most vendors charge you for transferring data to outside services (egress). Data transfers into your cloud (ingress) are often free.

Data retrievals

This refers to the cost of accessing data from a storage disk to modify it. The more often you need to retrieve your data for processing, the greater the retrieval fees accrue, which adds up for companies with a lot of data.

Region and availability zones

Cloud service providers have multiple data centers in specific regions across the globe. Your cloud provider will charge you based on the location of the data center from which you launch your resources. In the US, for example, North Virginia (US West) and Oregon (US West).

Each region offers several availability zones. Each AZ offers independent power, cooling, and networking infrastructure, providing backup in case one or two zones experience issues. And each AZ charges a different rate for each service.

Support plans

It is common for cloud providers to charge separate fees for different levels of support.

Outside help will also cost extra if you need it. This will often take the form of advanced tools that do a better job than vendor-provided ones, from cloud cost management tools to one-on-one consultations.

Those are a few examples of additional costs you’ll want to keep in mind.

You may still have other cost centers driving your cloud costs, including people (teams/departments), products (or services), and processes (such as cloud migrations). There might be penalties at other times, such as when you cancel a long-term contract.

Cloud Computing Pricing Models

Before comparing provider-specific prices, it helps to understand the pricing models that underpin all of them. Most cloud spend falls into one of three structures.

On-demand (pay-as-you-go) is the default. You pay for what you use with no upfront commitment and no long-term contract. This is the most flexible model and also the most expensive per unit. It works well for variable workloads, development environments, and any scenario where usage is unpredictable.

Committed use discounts trade flexibility for savings. By committing to a specific amount of usage over one to three years, you can save up to 70% compared to on-demand rates. AWS calls these Savings Plans and Reserved Instances, Azure calls them Reservations and Savings Plans, and GCP calls them Committed Use Discounts (CUDs). The risk is committing to capacity you do not end up using.

Spot and preemptible instances offer the steepest discounts — up to 90% off on-demand pricing — in exchange for accepting that the provider can reclaim the capacity with short notice. These are ideal for fault-tolerant, stateless, or batch workloads.

Most mature cloud operations use a blend of all three: committed capacity for baseline workloads, on-demand for bursts, and spot instances for cost-sensitive batch processing. The ratio between them is one of the most impactful levers for controlling cloud cost.

How Much Do Cloud Service Providers Charge?

In this section, we’ll briefly explain the pricing structures and methods the three major cloud providers offer: Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP).

How does cloud computing pricing work?

The cost of cloud computing depends on two main strategies: pay-as-you-go or discount-based usage.

However, exact prices vary by product/service and usage.

Pay-as-you-go pricing enables you to purchase cloud resources on demand. No upfront payments are required. No long-term commitment is required. You pay for what you use, and you are done.

Discounted pricing comes in two options: pay less for more usage and committed use discounts.

Now, let’s look at how different cloud providers apply these pricing structures.

How does AWS pricing work?

The AWS platform offers a free tier for you to experiment with. When you exhaust this free capacity, the vendor charges for your usage on a pay-as-you-go basis. This on-demand rate is the most expensive.

How AWS pricing works

In addition, AWS offers commitment-based discount programs (for compute) such as AWS Savings Plans and Reserved Instances (RIs). You can also use Spot Instances to save up to 90% off on-demand rates.

How much does Microsoft Azure charge?

Azure pricing closely resembles the AWS pricing model, with a free tier available for experimentation.

How Azure pricing works

Azure even offers a Price-match guarantee that matches AWS on comparable services.

Credit: Azure price match guarantee against AWS pricing

For compute, you can choose to skip any contracts and pay as you go for your Azure Virtual Machines (VMs), increasing and reducing usage as you see fit. Of course, that convenience comes with a hefty price tag.

Or, you can commit to consistent usage for up to three years to get up to 72% off the standard rate with Azure Reservations and Savings Plans, and up to 90% off with Azure Spot VMs.

Check out our AWS vs Azure pricing comparison if you’re wondering which is more cost-effective.

How much does GCP charge?

Google’s cloud platform offers similar pricing models to AWS and Azure, with a few twists.

How GCP pricing works

GCP mirrors the model with Committed Use Discounts (CUDs) for 1-3 year commitments and Sustained Use Discounts (SUDs) that automatically reduce costs for instances running more than 25% of the month. GCP’s recent elimination of standard internet egress charges is a notable differentiator, particularly for data-heavy workloads.

Want a quick comparison of all three cloud providers? Check out our AWS vs. Azure vs. GCP comparison here.

Now that we understand how cloud computing pricing works, let’s determine how much you can expect to invest.

Proven Cloud Computing Cost Savings Strategies

Understanding what drives cost is step one. Actively reducing it is where the value compounds. These are the highest-impact levers most organizations can pull.

Rightsize your instances. Most cloud environments are overprovisioned. Analyze actual CPU and memory utilization over a 14-day window and downsize instances that consistently run below 40% utilization. This single action typically reduces compute spend by 20-30%.

Maximize committed use coverage. Identify workloads with stable, predictable usage patterns and cover them with Savings Plans, Reserved Instances, or CUDs. The goal is to get your committed coverage ratio above 70% of baseline compute, with on-demand handling the variable remainder.

Eliminate idle resources. Unattached EBS volumes, unused Elastic IPs, orphaned snapshots, and idle load balancers are among the most common sources of cloud waste. Automate detection and cleanup, or use a platform like CloudZero to surface untagged and untaggable resources that slip through native tagging.

Architect for cost. Serverless functions, auto-scaling groups, and storage tiering are not just operational improvements — they are cost levers. Moving infrequently accessed data to archival tiers, using spot instances for CI/CD pipelines, and adopting serverless for event-driven workloads can cut spend without cutting capability.

Track cost per unit, not just total cost. Total cloud spend going up is not inherently a problem if revenue, customers, or transactions are growing faster. CloudZero enables teams to measure cost per customer, per feature, per deployment — which is the only way to know whether spending growth is healthy or wasteful.

How To Determine Your Cloud Infrastructure Costs

To figure out how much your cloud usage will cost, you’ll first want to measure how much you spend on-premises. Be sure to calculate both direct costs, such as operations, and indirect costs, such as administration. This is referred to as the Total Cost of Ownership (TCO).

By taking this step, you’ll get a good idea of the processing power, memory, networking, and storage capacity your various workloads require.

To begin with, you’ll want to know the number, type, and size of bare metal machines you already use in your existing on-premises environment.

You can also use a tool like CloudZero Advisor to pick just the right instance size and type (virtual machine) based on your use case and budget.

CloudZero Advisor is a free tool powered by CloudZero Intelligence that helps you select the right instance type and size based on your target service, workload profile, and budget. It supports comparisons across EC2, RDS, ElastiCache, and more, and you can upload CloudFormation templates to estimate infrastructure costs before deployment. Try CloudZero Advisor here.

Next, use your cloud provider’s Total Cost of Ownership calculator. Here’s an example of how the Azure Pricing Calculator works:

Fill out the cost calculator with your resource requirements from the previous step.

The calculators estimate the costs you can expect to invest based on your requirements.

Oh, another thing.

You’ll want to include cloud migration costs, especially if you plan to move to the cloud gradually rather than all at once. The cost is ongoing, right?

As you migrate to the cloud, you can collect, analyze, share, and receive cost anomaly alerts using a cloud cost platform like CloudZero. This way, you can minimize cost surprises arising from unexpected usage. That’s not all.

How To Forecast, Budget, And Allocate Cloud Costs With CloudZero

Unlike other cloud cost platforms, CloudZero empowers you to:

Software and pricing information last verified April 2026. Features, pricing, and availability may have changed. Please verify current details with vendors before making decisions.

CloudZero offers much more, including budgeting, forecasting, and cost allocation tools — all in one user-friendly package. to experience CloudZero in action for yourself.