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Regulating Cloud Costs: How To Implement Intelligent Spending Habits

CloudZero CTO Erik Peterson breaks down the responsibility of using the cloud and what you need to do to change the conversation from cost to profit.

Is your current cloud cost tool giving you the cost intelligence you need?  Most tools are manual, clunky, and inexact. Discover how CloudZero takes a new  approach to organizing your cloud spend.Click here to learn more.

Whether you’re a product manager, a marketing organization, or in finance, you’re probably using the cloud in some way.

But many businesses are still immature when it comes to building systems in the cloud, especially when it comes to how they use their financial resources.

Here, CloudZero founder and CTO Erik Peterson breaks down the responsibility of using the cloud, how to break down the costs of cloud computing, and what you need to do to change the conversation from cost to profit.

1. Put Tech Decisions In The Right Hands

While the CFO is in charge of a company’s overall finances, your CFO shouldn’t be the one making buying decisions when it comes to the cloud.

“The last thing you want is your CFO guiding you to make technology decisions,” Erik said. “That's going to be a disaster.”

CFOs are financial experts, but they don’t have the technical know-how to make the best choices for your technology.

“We send the people who are making the buying decisions off to make the decisions without having them really part of the cost conversation,” Erik said.

CFOs are interested in the numbers and cutting costs, but your engineering teams are the ones who understand the nuts and bolts of cloud computing. 

If a company has a physical product, like a newspaper company, the costs for individual supplies such as ink and paper are clear. But when it comes to cloud computing, we haven’t developed the same level of expertise and understanding.

“The manufacturing of today is we build software on top of the cloud and deliver it via the cloud,” Erik said. “And yet we have a really immature understanding of what our costs of goods sold is: what it costs to deliver value, what our margins are.”

If you want your funds to be used in the most efficient way, you have to put them in the hands of the right people — in this case, the engineers. Only the engineers truly understand what your company needs from cloud computing and how to get it. 

Looking for a simple breakdown of cloud economics 101? Read this

2. Implement Efficiency

Engineering — or building anything — has always been about working within constraints. But when it comes to the cloud, physical constraints cease to exist.

“For better or worse, we moved into the cloud and found ourselves in this happy land of no constraints,” Erik said. “At least that's what our cloud providers would want us to believe.”

But while we have infinite scale within the cloud, companies don’t have an infinite wallet to go along with it. No matter the success level of your company, your cloud spend is going to go up over time, so you need to be able to use your resources as efficiently as possible.

If you build your systems in a cloud-focused way, they should be elastic, ebbing and flowing as demand changes over time.

“What are you doing in order to efficiently use this resource?” Erik said. “Not so much how much you're spending, but then to take that and put that in terms of what it costs to deliver value.”

HubSpot Video

The total dollar figure is useless to an engineer. A better landmark to focus on is the cost to deliver value.

If you can decrease the cost while increasing the value of your product, you’ll increase your company’s profits no matter how much you spend.

3. Good Data Helps Make Good Decisions

Automated recommendations aren’t always good.

While they can often pinpoint a problem, automated recommendations rarely offer the best solution.

“You’ve given me data, you've given me an idea of where it is in the system,” Erik said. “Who's best equipped to do that? It's not some automated system that's necessarily going to go make a decision for me. I'm going to have to go write the code.”

Engineers are the ones who have to make real-time decisions about how to fix problems. But if they have access to the right data, it makes their job a lot easier.

“Engineers are smart people,” Erik said. “You give them the data and they're going to make better decisions.”

Give your engineers the data to help them understand what’s happening so they can go to work and problem-solve a better solution.

4. Break Down The Individual Costs

Most people know the basics of lowering overhead costs. But not understanding how to break down shared costs into their individual components is often overlooked.

“They might have that big shared database that's used by all five different teams, and they don't understand how that shared database usage is broken up across those teams,” Erik said. “They can't properly allocate or attribute the costs of these shared things.”

HubSpot Video

While your overall costs may seem to be in check, when you break down those costs into their proper categories, it’s easier to see where you’re wasting money.

“People make a one-line change and their costs drop by like 10x,” Erik said. “And it wasn't spending this undifferentiated time where they're searching for, I call it, searching for the coins in the couch.”

If you aren’t building a model based on real telemetry, you’re going to make bad engineering or strategic decisions. Keep yourself informed of all your cloud costs, big and small, to make the best decisions for your spend.

5. Change The Conversation From Cost To Profit

Ultimately, you don’t want to focus only on the cost of cloud computing. You want to engineer a profit from it.

“I want to change the conversation from costs to profit, because that is ultimately what we're all trying to do,” Erik said. “We're not spending this money as a sunk cost. We're spending this money because for every dollar I spend on my cloud provider, ideally, I would like to get $8 back.”

HubSpot Video

You aren’t just spending money to spend money, you’re spending money proactively to build a product that you can then sell for a profit. But if you want profit to come from your cloud computing, it’s up to your engineers to make that happen.

“I tell the engineering and architecture teams we work with, ‘Ultimately, we're going to turn you guys into a profit powerhouse,’” Erik said. 

Give your engineering team the ability to deploy strategies that result in a bigger bottom line; it will change your mindset from cost to profit. When people understand the cost of the buying decisions they make every day, they are better able to see how those costs are interrelated.

At CloudZero, we’re making efficient cloud-driven innovation possible for every organization that we're working with.

If you can start to understand the cost of everyday buying decisions, you’ll begin thinking about cloud computing in a completely different light. Request a demo today to get started.

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