Aligning cloud costs with business goals

In 2009, Simon Sinek started a movement to help people become more inspired at work, and in turn inspire their colleagues and customers. Since then, millions have been touched by the power of his ideas, including more than 28 million who’ve watched his TED Talk based on START WITH WHY the third most popular TED video of all time.

Sinek starts with a fundamental question: Why are some people and organizations more innovative, more influential, and more profitable than others? Why do some command greater loyalty from customers and employees alike? Even among the successful, why are so few able to repeat their success over and over?

Let us start with WHY. Why is cloud cost allocation so important??

Cloud cost allocation isn’t about optimizing or saving money, that’s a side effect. Cloud cost allocation lets your organization accurately predict future spend as your organization grows, which leads to better forecasting and the ability to increase profits.

Once you’ve built your own cloud cost allocation model to identify, aggregate, and assign your AWS to spend along business lines, there’s a critical concept your organization should explore to clearly align cloud costs with business goals: unit economics.?

Unit economics describes a business product in terms of revenues and costs related to a key performance indicator (KPI) that tracks closely with customer demand. That KPI can be any basic, quantifiable metric or item that creates value for the product.

For example, in the airline industry, the unit economic KPI is usually a seat on an airplane. If you’re running a SaaS product, the unit economic KPI could be a single API request or a customer on the platform, depending on product architecture. Your KPI and how you break out costs to support your customers are unique to your overall business.?

Once you’ve identified your product’s unit economic KPI, think about the infrastructure costs associated with it. These infrastructure costs include AWS and any other services you leverage to run the product, like Splunk, DataDog, ext. One simple approach to calculate your unit economic cost is to take the sum of all the infrastructure costs (including applicable third-party services) and divide that by your product’s specific unit metric.?

That process works great for an organization with a single product and a single set of associated cloud costs. But the reality is that your organization likely running multiple products across dozens or hundreds of AWS accounts. This is where your robust tagging strategy can help you accurately account for each product’s total infrastructure spend when all the cloud usage is shared.

Identifying and building your organization’s unit economic model takes work. But the?benefits of creating your unit economic model are enormous. Once you know what your unit KPI costs, predicting your AWS spend is only a matter of estimating growth. That allows finance to more accurately predict engineering spend further than just a quarter or two out.

How cost allocation and unit economics can drive profits

Once you know the cost of your unit KPI and the drivers that lead to it, you can begin tweaking things to improve your margins. Imagine winning deals with competitive but profitable discounting because you know exactly what it will cost to service a new customer.

That’s how you can leverage unit economics to grow your business in an increasingly competitive economic environment. Not only will you make your CFO happy with your ability to forecast the complex cloud spend, but your Head of Sales will also become your new best friend because you’ve given them a powerful tool to price deals more quickly and easily.?

Source : https://www.lastweekinaws.com/podcast/aws-morning-brief/balancing-cost-optimizations-and-feature-work/