AWS EC2 Pricing Explained (With Cost Examples)

EC2 pricing has gotten complicated with all the instance families, pricing tiers, and savings plan options flying around. As someone who has optimized AWS bills for companies spending anywhere from a few hundred to six figures per month, I learned everything there is to know about which pricing model actually makes sense for different workloads. Today, I will share it all with you.

AWS offers several pricing models for EC2, and picking the wrong one is probably the single most common way companies waste cloud budget. Understanding these options is not optional if you are running anything significant on AWS.

On-Demand Instances

On-Demand Instances let you pay for compute capacity by the hour or second depending on which instances you run. No long-term commitments. This flexibility allows you to increase or decrease computing capacity depending on the demands of your application. Prices can vary based on the instance type and region. Generally, On-Demand pricing is suitable for applications with unpredictable workloads.

Suitable for: Applications with short-term, spiky, or unpredictable workloads.
Billing: Per second, with a minimum of 60 seconds.
Key Benefit: Flexibility without upfront investment.

Reserved Instances (RI)

Reserved Instances provide a significant discount compared to On-Demand pricing. You make a one- or three-year commitment to use a specific instance type. Reserved Instances are ideal for steady-state or predictable usage. AWS offers three payment options for RIs: All Upfront (AURI), Partial Upfront (PURI), and No Upfront (NURI).

Suitable for: Applications with steady-state usage.
Billing: One-time, Partial Upfront, or No Upfront payments.
Key Benefit: Lower costs with commitment.

Spot Instances

Probably should have led with this section, honestly. Spot Instances let you use spare AWS capacity at up to 90 percent off On-Demand prices. The catch is that AWS can reclaim the instance with two minutes notice when they need the capacity back. That sounds scary, but for workloads that handle interruption gracefully — batch processing, CI/CD pipelines, data analysis — Spot pricing is the single biggest cost lever available to most companies.

Suitable for: Fault-tolerant or flexible applications.
Billing: Based on your bid and EC2’s current spot price.
Key Benefit: Extremely cost-effective.

Dedicated Hosts

Dedicated Hosts provide physical servers fully dedicated to your use. You can bring your existing server-bound software licenses, reducing costs. This pricing model is suitable for organizations with regulatory or compliance requirements. Dedicated Hosts also support longer billing terms similar to Reserved Instances.

Suitable for: Applications with specific compliance or regulatory needs.
Billing: Per host, with hourly and reservation options.
Key Benefit: Control over hardware and licensing.

Dedicated Instances

Dedicated Instances are EC2 instances that run on hardware dedicated to a single customer. Unlike Dedicated Hosts, you don’t have full control over the underlying hardware. Useful for isolating your instances from other customers’ instances in the same region.

Suitable for: Customer-specific workloads requiring isolation.
Billing: Per hour.
Key Benefit: Isolation without full hardware control.

Savings Plans

That’s what makes Savings Plans endearing to us cloud cost people — they provide lower prices than On-Demand in exchange for committing to a consistent usage level (measured in dollars per hour) for a 1 or 3-year term, but they cover a variety of instance types and regions. Unlike Reserved Instances, Savings Plans let you change instance families without losing the discount, which makes them the better default commitment for most companies.

Suitable for: Users looking for flexibility and cost savings.
Billing: Per second within the commitment, overage at On-Demand rates.
Key Benefit: Cost savings with flexibility.

EC2 Pricing Factors

Several factors influence EC2 pricing. Instance type, availability zone, operating system, and software packages contribute to cost variations. Additionally, different regions have different pricing structures due to local infrastructure costs. Networking, storage, and data transfer can also impact your overall expenditure.

Instance Type: From general-purpose to specialized instances.
Region: Varies by geographical region due to infrastructure costs.
Operating System: Windows, Linux, and other operating systems priced differently.
Data Transfer: Costs for data moving in and out of AWS.
Storage: Costs for Elastic Block Store (EBS) and other storage options.

Cost Management Strategies

Effective cost management can maximize your investment in AWS EC2. Utilizing pricing tools like Cost Explorer and Trusted Advisor can help. Employing a mix of On-Demand, Reserved, and Spot Instances offers financial benefits. Regularly review and optimize your workload and usage patterns.

Cost Explorer: Analyze and manage AWS costs and usage.
Trusted Advisor: Real-time guidance to help you provision your resources.
Instance Mix: Blend On-Demand, Reserved, and Spot Instances.
Regular Review: Continuous optimization and adjustment of usage.

Being actively involved in the monitoring and adjusting of your EC2 usage can yield significant savings. Understanding the different pricing models and factors will give you the tools to effectively manage and reduce costs while meeting your specific workload needs.