How to Calculate the Cost of Cloud Computing

Cloud computing cost

Cloud computing has become increasingly popular, offering businesses flexibility, scalability, and cost savings. However, determining the cost of cloud computing can be challenging. Many organizations end up spending more than they should on cloud resources. In this guide, we will explore how to calculate the cost of cloud computing, factors that contribute to high spending, hidden costs, and strategies to optimize your cloud spend.

How Much Does Cloud Computing Cost?

The cost of cloud computing varies depending on various factors. Most enterprises spend over $1 million annually on cloud computing, while small and medium-sized enterprises (SMEs) spend between $600,000 and $1.2 million per year. However, these figures do not account for indirect costs such as cloud migration and refactoring expenses.

To calculate your actual cloud costs, you can use the following formula:

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

Keep in mind that every organization’s cloud costs differ, even within the same industry.

How Much Do Companies Spend on Cloud Computing Today?

Gartner forecasts that public cloud end-user spending will reach $600 billion in 2023, with Infrastructure-as-a-Service (IaaS), Desktop-as-a-Service (DaaS), and Platform-as-a-Service (PaaS) experiencing the highest growth. Surprisingly, only 30% of organizations know where their cloud spend is going, according to a recent State of Cloud Cost Intelligence report. This lack of visibility results in unnecessary expenses, with organizations losing approximately 28% to 32% of their cloud spending to avoidable waste.

How Much Does Cloud Computing Save?

Cloud computing can save companies a significant amount of money compared to on-premises environments. According to Clay Magouyrk, Senior Vice President of Engineering at Oracle Cloud, customers can save 30% to 50% by migrating to the cloud. Additionally, an Office 365 survey reported an average infrastructure cost savings of 20% when moving to the cloud. However, achieving cost savings requires adjusting workloads to the cloud environment, which can be challenging for many organizations.

What Factors Determine Cloud Costs?

Cloud computing costs are influenced by three main factors:

  1. Compute: This includes the processing power, memory, and temporary storage required to run workloads efficiently.
  2. Network Connectivity: Costs are incurred based on the volume of data transferred in and out of the cloud service.
  3. Storage Capacity: The type and amount of storage required for applications.

It’s essential to note that there may be additional costs that do not fit into these categories, such as data transfer fees, data retrievals, region and availability zone charges, and support plans.

What Are the Hidden Costs of Cloud Computing?

Hidden costs of cloud computing can include data transfer fees, data retrievals, region and availability zone charges, and different levels of support requiring additional fees. Other cost factors may involve people, products, processes, penalties, and external tools or services required for optimization.

How Much Do Cloud Service Providers Charge?

Cloud service providers like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP) offer different pricing structures. They typically offer pay-as-you-go pricing and discounted pricing options based on usage and commitment. Exact prices vary depending on the specific service and usage.

How to Determine Your Cloud Infrastructure Costs

To estimate your cloud usage costs, it’s important to calculate your total cost of ownership (TCO) for on-premises infrastructure, including direct and indirect costs. This information provides a basis for evaluating processing power, memory, networking, and storage capacity requirements. Cloud providers offer total cost of ownership calculators to generate cost estimates based on your requirements.

How to Forecast, Budget, and Allocate Cloud Costs With CloudZero

One effective tool for managing and optimizing cloud costs is CloudZero. It provides budgeting, forecasting, and cost allocation tools in one user-friendly package. With CloudZero, you can collect, analyze, and share cost data, allowing you to minimize cost surprises and optimize your cloud spend.

In conclusion, calculating the cost of cloud computing involves considering various factors such as compute, network connectivity, and storage capacity. It’s crucial to be aware of hidden costs and utilize tools like CloudZero to optimize your cloud spend.


Q: How much do enterprises typically spend on cloud computing?
A: Most enterprises spend over $1 million annually on cloud computing.

Q: What factors determine cloud costs?
A: Cloud costs are influenced by compute requirements, network connectivity, and storage capacity.

Q: How can organizations optimize their cloud spend?
A: By utilizing tools like CloudZero, organizations can collect and analyze cost data to make informed decisions and optimize cloud spending.

Q: Do cloud service providers offer discounted pricing?
A: Yes, cloud service providers offer discounted pricing options based on usage and commitment.

Q: Can cloud computing save organizations money compared to on-premises environments?
A: Yes, organizations can achieve cost savings of up to 50% by migrating to the cloud compared to on-premises environments.

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