How to Benchmark Cloud Costs Against Industry Standards

Struggling to control your cloud spending? You're not alone - 72% of companies exceeded their cloud budgets in 2023. Benchmarking your cloud costs against industry standards can help you cut waste, optimise resources, and stay competitive.

Key Takeaways:

• Set clear goals: Reduce costs, improve resource usage, or compare with industry averages.
• Gather data: Use tools like AWS Cost Explorer, Azure Cost Management, or Google Cloud tools for insights.
• Compare benchmarks: Align your spending with industry-specific metrics and adjust for regional factors like UK pricing.
• Take action: Eliminate unused resources, right-size instances, and optimise storage to save money.
• Make it ongoing: Regular reviews and a FinOps culture keep costs under control long-term.

Example: One company saved £50,000 annually by optimising storage after benchmarking against industry standards.

Quick Overview:

1. Define goals: What do you want to achieve? E.g., cut costs by 20%.
2. Collect data: Use cloud provider tools or third-party platforms.
3. Compare industry benchmarks: Look at sector-specific spending and adjust for factors like compliance.
4. Analyse and act: Spot inefficiencies, visualise trends, and apply cost-saving strategies.
5. Continuous improvement: Build a culture of cost awareness and conduct regular reviews.

Start now to reduce cloud costs and maximise value.

A Look at Intuit's Cloud Cost Optimization and FinOps Best Practices

Step 1: Set Your Benchmarking Goals

To get the most out of cloud cost benchmarking, you need to start with clear, measurable objectives. Without well-defined goals, it’s easy to get overwhelmed by data. This is especially important as forecasting remains a major challenge - highlighted as the second biggest issue in the 2022 State Of FinOps survey [2]. Many organisations dive into benchmarking without fully understanding what they want to achieve, which can lead to wasted effort.

The goal of forecasting is not to predict the future but to tell you what you need to know to take meaningful action in the present – Paul Saffo [2]

Define Clear Goals

Set specific targets that are both measurable and actionable. For instance, you might aim to reduce cloud spending by 20% within a year or improve resource utilisation rates from 50% to 75%. These kinds of goals give you a clear direction and make it easier to track progress.

Some common benchmarking objectives include:

• Cost reduction: Focus on trimming expenses by identifying unused resources or rightsizing instances.
• Resource optimisation: Improve utilisation rates and monitor performance metrics to make better use of existing resources.
• Competitive cost analysis: Compare your spending patterns with industry standards to stay competitive.

Here are some examples of effective goals:

• Cost per instance benchmarking: One organisation found that only 50% of its resources were being used. By targeting this inefficiency, they achieved a 15% reduction in costs [5].
• Industry comparisons: Regularly reviewing Gartner’s cloud spending reports revealed that a company was overspending on storage by 30% compared to the industry average. This insight led to optimisations that saved £50,000 annually [5].
• Operational efficiency targets: Quarterly audits can uncover hidden costs. For example, one team discovered orphaned resources costing £10,000 per month. By conducting regular reviews, they achieved ongoing savings [5].

The clearer the scope, the better the outcome – Lisa Higgins, CEO and President of APQC [8]

Match Goals to Your Business Context

Your benchmarking goals should fit your industry, regulatory needs, and workload types [2]. For instance, a financial services company operating under strict compliance rules will have different priorities than a tech startup focused on rapid scaling.

Consider this: 89% of organisations now use multiple cloud platforms [4]. This adds complexity to goal setting, as each platform has its own pricing models and optimisation opportunities. If you’re managing multiple clouds, your goals should reflect this complexity and address the nuances of each platform.

For UK businesses, specific factors influence goal setting:

• Regulatory compliance: Sectors like financial services, healthcare, and government face unique spending challenges due to compliance requirements.
• Data sovereignty: Keeping data within the UK can drive up storage and processing costs.
• Multi-cloud strategies: With 57% of large enterprises using multi-cloud FinOps tools [4], goals should account for managing costs across platforms while avoiding vendor lock-in.
• Growth stage: A startup prioritising agility may accept higher per-unit costs, while established enterprises often focus on efficiency.

Your goals should also reflect trade-offs between cost, speed, and quality. The FinOps principles emphasise empowering teams to manage these trade-offs effectively [6]. For example, if speed to market is your top priority, focus on metrics like cost per deployment or time-to-value rather than simply cutting costs.

Before diving into data collection, take the time to define these goals. If you’re unsure where to start, Hokstad Consulting (https://hokstadconsulting.com) can help you align your objectives with best practices in the industry.

Once your goals are set and tailored to your organisation’s context, the next step is gathering the cloud cost data you’ll need.

Step 2: Collect Your Cloud Cost Data

Having precise cloud cost data is key to identifying inefficiencies and reducing waste. With 32% of cloud budgets at risk of being wasted [9], gathering this data thoroughly can help pinpoint areas where costs can be trimmed.

Use Cloud Provider Tools

Start with the cost management tools provided by your cloud service provider. These tools let you access detailed spending information without additional charges.

• AWS Cost Explorer: This tool breaks down your AWS spending by service, region, and time period. You can track trends over the past 13 months and even forecast future costs based on historical data.

• Azure Cost Management + Billing: Designed for Microsoft's cloud platform, this tool offers detailed cost tracking, budgeting, and real-time spending alerts. It integrates seamlessly with Azure resources.

• Google Cloud's Cost Management tools: These tools provide similar features for Google Cloud Platform users, including detailed cost breakdowns and early detection of spending anomalies.

While these tools give you raw data, the next step is to focus on key performance metrics to better understand your spending patterns.

Track Key Metrics

To benchmark effectively, monitor metrics that highlight how efficiently your cloud resources are being used. Here are some critical ones to consider:

• Cost per workload: This metric shows the cost of running individual applications or services. It’s particularly useful when comparing workloads across different environments or time frames.

• Utilisation rates: These reveal how much of your allocated resources are actually being used. For example, one organisation improved its utilisation from 50% and cut costs by 15% [5]. Low utilisation often signals oversized or idle resources that could be adjusted or removed.

• Monthly spending trends: Analysing these trends can uncover seasonal patterns and unexpected spikes in costs.

• Cost per user or instance: This provides a per-unit view of costs, which is helpful for benchmarking against industry standards. Regular monitoring can also highlight issues like abandoned resources - one audit discovered unused resources costing £10,000 per month [5].

• Resource efficiency metrics: These track how well your infrastructure performs relative to its cost, covering areas like compute efficiency, storage usage, and network expenses.

When collecting this data, ensure you capture it across all relevant dimensions, such as service type, region, environment (development, staging, production), and business unit. This level of detail allows for more accurate comparisons and helps identify specific areas for improvement.

Use Third-Party Analytics Tools

In addition to native tools, third-party analytics platforms can provide advanced features that enhance your benchmarking efforts. These tools are especially helpful if your organisation operates across multiple cloud providers.

• Multi-cloud management platforms: With 89% of organisations now using multiple cloud platforms [4], having a unified view of spending is critical. These platforms consolidate data from different providers, making it easier to benchmark and manage costs.

• Automated cost allocation and tagging: Third-party tools simplify the process of organising expenses by project, team, or cost centre. Manual tagging can often lead to errors or incomplete data, so automation can improve accuracy.

• Real-time monitoring and anomaly detection: These features help identify cost spikes as they occur, preventing minor issues from escalating into larger budget problems.

• Industry benchmarking: Some platforms maintain anonymised databases of industry spending data, allowing you to compare your costs against similar organisations in your sector.

When choosing a third-party tool, consider the total cost of ownership, including subscription fees, implementation, and maintenance. Many platforms offer free trials or audits, giving you the chance to test their capabilities before committing.

Data integration is another crucial factor. Ensure the tool can pull data from all your cloud providers and connect with your existing financial systems. Look for platforms that support automated data collection via APIs to minimise manual work and improve accuracy.

For organisations managing multi-cloud environments, these analytics tools can deliver insights that lead to cost savings and better operational efficiency. If you're unsure which solution suits your needs, Hokstad Consulting (https://hokstadconsulting.com) can assist in evaluating your options and setting up effective data collection strategies.

Once your data collection processes are in place, you'll be ready to align your spending data with industry benchmarks for deeper insights.

Step 3: Find and Use Industry Benchmarks

To make informed decisions about cloud spending, it's essential to use benchmarks that align closely with your business. Generic averages can serve as a starting point, but they often lack the nuance needed for meaningful comparisons. Instead, focus on benchmarks tailored to your industry, company size, and regional context.

Find Industry-Specific Benchmarks

When selecting benchmarks, consider factors like your sector, the size of your organisation, and your location. For example, small to medium-sized businesses (SMBs) usually allocate 3–6% of their revenue to IT, while larger enterprises may spend 6–10% [11]. However, these figures are broad and may not reflect the unique needs of your business.

Different industries have varying cloud spending patterns. A financial services company, for instance, will likely approach cloud costs differently than a retail or manufacturing business. Look for benchmarking services that provide detailed metrics, such as IT spend as a percentage of revenue [3]. These services often supply granular data that better reflects your sector's specific needs.

Company size also plays a crucial role. A startup with 50 employees will have vastly different cloud usage and spending patterns compared to a large enterprise with 5,000 staff members. Keep both your current size and future growth in mind when evaluating benchmarks.

For businesses in the UK, regional factors are especially important. Cloud costs can vary significantly depending on location [5]. UK-specific benchmarks should account for factors like local pricing models, data residency requirements, and regulatory compliance costs, which may not apply in other regions.

Cloud cost optimisation platforms can also provide useful benchmarks. For example, CloudZero helped Skyscanner identify enough savings within two weeks to cover a year's worth of licence fees [10]. Stuart Davidson, Platform Engineering Lead at Skyscanner, shared:

Within two weeks, we had already found enough savings to pay for a year's worth of license. It was that good - that intuitive.

These kinds of benchmarks can offer valuable insight into both internal and external cost efficiency.

Internal vs External Benchmarking

Both internal and external benchmarking have their strengths, and combining the two approaches often yields the best results.

Internal benchmarking focuses on comparisons within your organisation. For example, you might compare cloud usage between different teams or departments, such as product and engineering teams, to identify areas for improvement [12]. This approach provides access to detailed data and allows for a deeper understanding of spending decisions, helping you optimise specific workloads.

External benchmarking, on the other hand, involves comparing your spending to industry peers and standards. This can reveal whether your costs are higher or lower than similar businesses in your sector. For example, one company discovered they were spending 30% more than the industry average on storage, prompting them to optimise their storage strategy and save £50,000 annually [5]. While external benchmarking offers insights into industry trends and potential savings, it requires careful adjustments to ensure fair comparisons.

By combining these methods, you can identify opportunities for optimisation and refine your cloud strategy.

Adjust Data for Fair Comparisons

Once you've gathered internal and external data, it's important to adjust for factors that could skew comparisons. This ensures your analysis accurately reflects genuine differences in performance or costs.

For UK businesses, regional pricing adjustments are crucial. Cloud costs can vary significantly across regions, so benchmarks that include global data should be adjusted to reflect local pricing structures.

Currency considerations are another key factor when working with international benchmarks. Convert all figures to pounds sterling using consistent exchange rates, and account for potential currency fluctuations when making long-term comparisons.

Workload characteristics also impact cloud costs. Usage patterns, such as peak demand periods or underutilised resources, can drive up expenses if not managed carefully [13]. Adjust for factors like peak usage, architecture differences, and compliance requirements to ensure fair comparisons.

Finally, pay attention to pricing model differences. Comparing organisations that use different pricing options - like pay-as-you-go, reserved instances, or spot pricing - can lead to misleading conclusions. For example, Reserved Instances (RIs) can save 50–70% compared to on-demand pricing when committing to one- or three-year contracts [13]. Make sure your comparisons account for these variations.

It's a good idea to revisit and update your adjustments regularly as your cloud environment evolves. If you're unsure where to start or need help refining your benchmarks, Hokstad Consulting can assist by creating comparison frameworks tailored to your business and regional context.

Step 4: Analyse Results and Find Cost Savings

After collecting benchmarking data and making initial adjustments, the next step is to dig into the results and uncover actionable ways to cut costs. This is where raw data turns into practical strategies that can help you trim cloud expenses while keeping everything running smoothly.

Perform Gap Analysis

A gap analysis is your tool for spotting where your cloud spending veers off from industry norms and identifying inefficiencies in your setup. Essentially, it’s about comparing your actual costs to expected benchmarks to uncover areas that need improvement [16].

Start by examining how your costs stack up against industry standards in different categories. If you notice spending that’s noticeably higher in certain areas, that’s a red flag for potential inefficiencies [7]. Alongside this, keep an eye on key performance metrics [15] to see how well your cloud infrastructure is performing compared to industry expectations.

Look for patterns or outliers during your analysis. For example, are there regular spikes in spending every quarter? Or do you have resources that are consistently underutilised? These could point to underlying issues that, once resolved, could lead to considerable savings. Make it a habit to monitor and analyse costs regularly so you can catch emerging trends and new opportunities for savings as they arise [14].

Once you’ve gathered these insights, you’ll be ready to visualise the data for a clearer understanding of your spending.

Create Data Visualisations

Good visualisation is key to making sense of complex cloud cost data. A lack of visibility can lead to wasted spending and poor resource allocation [18], so presenting the data clearly is crucial for keeping costs in check.

Visualisation tools turn raw financial data into easily digestible insights, helping both technical and financial teams quickly spot cost anomalies, track spending trends, and allocate resources more effectively [18]. This approach bridges the gap between technical and financial perspectives, encouraging better collaboration across teams [17].

Use tools like custom dashboards, cost heatmaps, and trend charts to highlight unusual spending patterns [17]. Tailor your reports to suit different audiences - detailed breakdowns for finance teams and high-level summaries for executives [17]. Traditional spreadsheets and standard billing reports often miss the nuances of cloud infrastructure, making it harder to catch smaller spending issues or optimisation opportunities [18].

Armed with these visual insights, you can now focus on implementing specific measures to reduce costs.

Apply Cost-Saving Measures

With the findings from your gap analysis and visualisations, you can start applying targeted strategies to cut costs. This means reviewing your cloud expenses in detail and making adjustments that reduce spending without compromising productivity or efficiency [1].

• Eliminate unused resources: Regular audits can help you identify idle resources. For instance, one organisation found orphaned resources costing them £10,000 per month [5].
• Right-size your instances: Adjust instance types and sizes to align with workload demands, which can lead to further savings [5].
• Use reserved instances and savings plans: These are ideal for resources with predictable, long-term usage patterns [1] [5].
• Optimise storage: Based on benchmarking, one company discovered they were overspending by 30% on storage. By optimising their strategy, they saved £50,000 annually [5]. Use storage tiers that match your data access and retention needs.
• Reduce data transfer fees: Design your architecture to minimise unnecessary data movement between services or regions [1].
• Automate scaling: Match your infrastructure to demand automatically, ensuring you’re only paying for what you use [5].
• Automate cost management: Use tools to maintain consistent control over your cloud expenses [1].

If implementing these measures feels overwhelming or you need expert help, Hokstad Consulting can assist in crafting a tailored optimisation strategy that aligns with your specific needs and benchmarking insights.

Step 5: Create Ongoing Benchmarking Process

Once your initial cost-saving measures are in place, the next step is to ensure those savings are maintained. This is where continuous benchmarking comes in. By consistently comparing your cloud costs to industry standards and your business goals, you can stay on track and avoid unnecessary spending.

Build a FinOps Culture

Creating a FinOps culture is about more than just ticking a box - it’s a shift in how your organisation approaches cloud spending.

FinOps is much more than a task to check off the to-do list; it's a cultural movement where finance, IT, and DevOps teams join forces to transform the organisation's approach to cloud spending. [21]

To embed this culture, start by getting executive support to prioritise cloud cost management. Then, form cross-functional FinOps teams, bringing together finance, IT, and product representatives with clearly defined roles. Transparency is key - regularly share cost data and insights across teams. A consistent tagging strategy for all cloud resources will ensure accurate tracking and reporting.

Currently, many organisations are still finding their footing with FinOps: 61.8% are at the Crawl stage, 24.9% are in the Walk stage, and only 13.3% have reached the Run stage [22]. By encouraging shared financial accountability, you can help your teams progress through these stages and make cost reviews a regular, informed practice.

Set Up Regular Reviews and Monitoring

Keeping cloud spending under control requires regular check-ins and monitoring [23].

Schedule monthly or quarterly reviews with cross-functional teams to assess spending against industry benchmarks and uncover new ways to optimise. Automated monitoring tools can provide real-time analytics and flag anomalies, helping you stay ahead of potential issues. For businesses using multiple cloud platforms, third-party tools can offer detailed cost allocation and insights.

It’s also crucial to make cost a visible and important metric. Development teams should understand how their decisions impact overall spending. Surprisingly, only 3 out of 10 organisations have a clear picture of where their cloud budget is going [20]. By improving visibility, you’ll enable smarter decision-making across your organisation.

Work with Cloud Cost Specialists

While building internal expertise is important, sometimes an external perspective can make all the difference. Partnering with cloud cost specialists can help you identify opportunities you might have missed and refine your cost management processes [19].

Specialists like Hokstad Consulting, for example, focus on cloud cost engineering and offer tailored strategies that can cut expenses by 30–50%. Their services include detailed audits, strategic planning, and ongoing support to help you establish sustainable practices. They even offer a No Savings, No Fee model, aligning their success with your savings goals.

Investing in training for your internal teams is equally important. As Paige Johnson from Microsoft points out:

Investing in cloud training for IT personnel ensures that companies can better manage and optimise cloud environments without hiring new staff. This helps in retaining institutional knowledge while expanding cloud expertise. [19]

For long-term success, think beyond one-off projects. Building lasting partnerships with specialists ensures that your benchmarking processes evolve as your business grows.

Conclusion: Achieve Cost Efficiency with Cloud Benchmarking

Benchmarking your cloud costs against industry norms can redefine how you manage cloud investments. With global public cloud spending expected to surpass £580 billion by 2025 [20], adopting this approach is more important than ever.

The results speak for themselves. For example, one organisation discovered it was overspending by 30% on storage and managed to save £40,000 annually by refining its strategy. Another shifted 60% of its on-demand instances to reserved instances, saving £160,000, with additional rightsizing efforts cutting costs by another 10% [5]. These real-world examples illustrate the measurable benefits of benchmarking.

Key Takeaways

Achieving effective cloud cost benchmarking requires a structured framework built around clear goals, thorough data collection, and industry comparisons. Start by setting specific objectives - whether that’s cutting costs, improving resource usage, or staying competitive in your field [5]. Without clear goals, benchmarking risks becoming an aimless data-collection exercise.

The foundation of meaningful benchmarking lies in comprehensive data collection. Tools like AWS Cost Explorer, Azure Cost Management, and Google Cloud Cost Management can help you gather detailed insights into your cloud usage and costs [5]. The key is identifying metrics that matter for your business, such as cost per user, utilisation rates, or operational efficiency.

Comparing your performance against industry benchmarks provides a valuable external perspective. Reports from sources like Gartner, Forrester, and IDC can reveal how your spending stacks up against others in your sector [5].

The real value of benchmarking comes from acting on the insights it provides. Regular audits - conducted quarterly or bi-annually - can uncover inefficiencies before they escalate. For instance, one company identified orphaned resources costing £8,000 a month during a routine audit, proving how regular reviews can unearth hidden waste [5].

Next Steps

To get started, establish a baseline assessment using the native tools provided by your cloud provider. Focus on high-cost areas like compute, storage, and data transfer, and commit to regular reviews to uncover additional savings.

It’s also essential to prepare for the organisational complexities of managing multiple cloud platforms, as 89% of businesses now operate in multi-cloud environments [4]. Investing in team training ensures your staff can keep up with the rapidly evolving cloud landscape.

For faster results, consider partnering with experts. Firms like Hokstad Consulting specialise in cloud cost engineering, offering services that can cut expenses by 30–50%. Their No Savings, No Fee model ensures their success is tied directly to your cost reduction goals, making it a low-risk way to access professional guidance.

Remember, benchmarking isn’t a one-off task - it’s an ongoing process. One organisation achieved a 25% reduction in cloud costs over two years simply by holding monthly review meetings to discuss benchmarking data and optimisation strategies [5]. This demonstrates how consistent effort can lead to long-term savings.

Start your benchmarking journey today. With clear objectives, detailed data collection, and regular reviews, you can transform your approach to cloud cost management and achieve lasting efficiency.

FAQs