Why Unit Economics Helps You Commit To Discounting Programs

Is your enterprise still paying the sticker price for cloud services?

If so, you’re probably leaving a significant amount of money on the table.

Once your company surpasses the level of “large business” and begins growing into a full-fledged enterprise, it likely qualifies for enterprise discounts offered by each of the major cloud providers. The most well-known of these would be the Enterprise Discount Program (EDP) offered by Amazon Web Services (AWS).

However, taking advantage of these discounts isn’t as simple as signing up and watching the savings accumulate.

To qualify for the AWS EDP, a business must commit to spending a certain amount of money over a specific period of time. That threshold is deliberately set high to target enterprise customers.

Smaller companies that usually spend a couple hundred thousand dollars per year will not qualify, and even if they did, they would pay more than necessary for the amount of resources they use. The EDP offers tiered discounts, so big spenders will achieve more of a discount than companies that just barely made the cutoff.

The tricky part is knowing where your business falls on that spectrum of spending.

Perhaps some months you spend more than others, and over the course of a year you have spikes of heavy spending followed by weeks or months without much going on. Or, maybe your business is on the verge of growing or shrinking, and you don’t feel comfortable predicting how much you’ll spend over the next year.

Unless you know with some confidence how much you’ll spend in the near future, it’s best to avoid a hefty commitment.

The last thing you’d want to do is commit to a level of spending far beyond what your company will actually achieve in reality; any discount you earn from that commitment will likely not outweigh the fact that you’ve dramatically overcommitted to a set price.

This is where understanding your company’s unit economics becomes crucial.

How Understanding Unit Economics Allows You To Commit To Discount Programs With Confidence

How can you learn to accurately predict future spending?

Knowing exactly how much you have spent on each product, service, feature, customer, service region, and other areas means you have the power to forecast what would happen if circumstances changed.

If you’re launching a new feature, for example, you can simply look back at how much it cost to launch previous features to get a fairly good idea of what you’ll spend this time around.

Or, if you plan to focus more intensely on a particular customer demographic, you can estimate what it costs to support that specific type of customer, as well as the costs you might save by reducing services to more expensive demographics.

From there, building a handful of “what if” predictive models can tell you what your spending will likely be if you move forward with your current plans or if some other variable changes.

When you can predict future spending with unit economics, you can confidently commit to discount programs

Using unit economics, you can examine your patterns of spending to find the most stable parts.

Perhaps your spending on network resources fluctuates wildly with customer usage, but your AI customer service chatbot usage stays within a relatively narrow range.

These areas of stability are what you can count on when you’re committing to usage thresholds for enterprise discount programs. The other variables add layers on top, but your core spend is a comfortable minimum that tells you which discount tier you might want to aim for.

For best results, model out best- and worst-case scenarios to get an idea of the likely range your spending might fall into over the following year, and err on the side of the projection that seems most likely.

What happens if you under- or overestimate your expected spending?

If you’ve underestimated how much you can commit — for example, you committed to spending $30 million over three years, but you’ve blown past $40 million by the second year — you can likely renegotiate your terms for a more favorable rate.

Cloud providers will never turn down your money, so overspending grants you some wiggle room.

Falling short, on the other hand, is a bit trickier to handle. One solution is to purchase a large number of reserved instances in advance. This boosts your spending now, so you can technically fulfill your commitment, but it should still translate into some savings in the long run.

If you find yourself in this situation, it might feel like you’re playing a high-stakes game with your company’s finances hanging in the balance.

Making large moves such as buying up reserved instances on the heels of realizing you’ve already dramatically miscalculated your spend level can be dangerous unless you take the opportunity to improve your understanding of your cloud spending habits.

CloudZero Gives You Visibility Into Your Spending — And Helps When You Run Into Trouble

In your pursuit of clear, granular unit economics, you’ll need a cost intelligence platform that can break down where every dollar is going. The Dimensions dashboard by CloudZero gives you a full account of every cloud-related cost and makes it easy to identify trends.

If you’re having trouble navigating the murky waters of enterprise discount plans, the data helps, but there’s no substitute for personalized, expert advice.

Our team members are happy to work with you to negotiate great EDP rates, find safe commitment levels, and solve any over- or under-commitment problems as they may occur.

to see CloudZero cloud cost intelligence platform for yourself!