Amazon EC2 Pricing Explained: An EC2 Pricing Guide for 2023 (2023)

A good portion of your Amazon Web Services (AWS) public cloud spend goes to the Amazon Elastic Compute Cloud (Amazon EC2) service. Because it's the default compute service on AWS, Amazon EC2 is key to building, running, and scaling your AWS-based applications.

This also means that Amazon EC2 pricing has a huge impact on your AWS budget. Understanding how the EC2 billing model works will help you control and optimize your AWS spend.

We've put together this handy EC2 pricing guide to detail exactly what EC2 does, how EC2 pricing works, and how to choose the best AWS services for your product or software.

Table of contents

• What does Amazon EC2 do?
• Understanding EC2 Costs: How Does Amazon EC2 Pricing Work?
• What is the EC2 billing model?
• Here's how to understand, control, and reduce costs of Amazon EC2 immediately
• Frequently asked questions about Amazon EC2 pricing

What does Amazon EC2 do?

Amazon EC2 provides scalable compute capacity whenever your workload demands it. EC2 offers a variety of CPU, RAM, storage, and network configurations (instance types) for your virtual servers (instances).

EC2 allows you to rent nearly unlimited virtual server capacity on demand, rather than provisioning excess resources in anticipation of unexpected traffic or workload spikes.

Understanding EC2 Costs: How Does Amazon EC2 Pricing Work?

The EC2 pricing model means you don't have to buy and configure your own hardware. Instead, Amazon lets youPay when you go outonly for the resources you have used within a billing period. Often this cycle is monthly.

This allows you to convertCapital Expenditure (CapEx) to Operating Expenses (OpEx)if you pay your Amazon EC2 bill monthly.

That's easy enough. But things can get complex pretty quickly. Here's why.

Amazon EC2 instances also come in a variety of sizes—not just different types. This flexibility allows you to choose the most appropriate sizes and sizesTypes of EC2 Instancesfor your specific workload.

There is a term for this:resizing.resizingminimizes the amount of processing power you use while providing just enough power to run your workload smoothly. Inefficient rightsizing led40% of companiesto configure instances that were one number larger than the workload they were used for.

The result:$17 billion wastedCloud spend in 2020 alone.

Manually choosing the best EC2 instance type and size for your needs can be daunting. Luckily, you can use tools likeCloudZero Advisorfor this.

However, if you want to maximize ROI from your cloud budget, you need to understand how Amazon EC2 pricing works.

Here's how.

What is the EC2 billing model?

AWS offers five Amazon EC2 billing methods:

• EC2 On-Demand Pricing
• EC2 Savings Plans
• EC2 reserved rates
• EC2 Spot Prices
• Dedicated Hosts Pricing

Also, EC2 prices are either hourly or per second. EC2 per-second billing has a minimum commitment of 60 seconds and is ideal for workloads that don't always require full hours, such as: B. Testing and Staging.

Here's a breakdown of each EC2 billing method.

1. Amazon EC2 On-Demand Pricing

With EC2 On-Demand pricing, you can choose any instance type and size, scale resources up and down as needed, and only pay for what you use. No prepayments. No long-term commitment required.

You can also decide when to provision, terminate, restart, or hibernate specific EC2 instances. Billing is also hourly or to the second. In addition, EC2 On-Demand pricing is available for all Availability Zones (AZs), Regions, and Operating Systems (Linux, Windows, and RedHat Enterprise Limited Edition (RHEL)).

This is also the standard price for EC2 instances and offers the most flexibility. The downside is that on-demand pricing is more expensive than other EC2 pricing methods, as you'll discover below.

Also, on-demand pricing varies widely and depends on your choice of region/availability zone, operating system, instance type, and instance size. Here is an example.

An example of how different operating systems affect EC2 pricing

We reported more about itOn-Demand Instances and when to use them here.

2. Amazon EC2 Savings Plan Pricing

With a 1-year or 3-year EC2 savings plan, you can save up to 72% off regular On-Demand pricing. AWS Savings Plans require that you commit to consistent usage in dollars per hour, e.g. B. $8/hour for one or three years.

Savings plans for Amazon EC2 instancesyou can switch between EC2 instance types and operating systems during your contract term. But it ties you to one instance type (family) and one AWS Region for the duration of this contract.

Suppose you initially configured an M5.xl instance in US East (N. Virginia) running Windows. With an EC2 instance savings plan, you can:

• Increase or decrease the instance size to accommodate changes in your usage
• Switch from Windows to a Linux instance and vice versa
• Change tenancy (dedicated or shared)
• Change availability zone (AZ).

For example, you can switch from M5.xl running Windows in US East (N. Virginia) to M5.2xl running Linux in US East (N. Virginia) to increase capacity. However, you cannot switch from the M5.xl with Windows to a T3.xl with Windows or Linux. Also, you cannot migrate to US West (Ohio) to host the same Windows M5.xl instance.

Calculate savings plansoffer discounts of up to 66% compared to On-Demand EC2 prices.

Despite their smaller discounts, these plans apply to multiple AWS services (Amazon EC2, AWS Fargate, and AWS Lambda), regions, instance families, instance sizes, and operating systems.

Just one thing. The amount of your savings plan rebate also depends on the payment plan you choose:

• Everything in advance- Get the most savings by paying for the entire plan upfront
• Partly in advance- Save when you pay at least 50% down payment
• no in advance- You pay your commitment monthly over the life of your contract with some savings

Let's work with an example here.

Suppose you are configuring an M6i.xlarge in the western United States (Oregon). For a one-year partial upfront EC2 instance savings plan, the On-Demand rate is $1,060 ($530 upfront, then $44.15 per month). That's $0.121 per hour, a 37% discount over the on-demand price. That's $622 in savings over a year.

3. Amazon EC2 Reserved Instance Pricing

If you commit to a year or three of consistent usage, EC2 Reserved Instance pricing can save you up to 72% compared to On-Demand pricing. The other benefit here is that you can reserve capacity in a specific Availability Zone, so you can launch new instances whenever you need them.

there is more

• Standard Reserved Instance Pricingallows you to save up to 72% over On-Demand pricing, and you can change the Availability Zone, instance size, and connectivity of your standard RIs within the contract term.
• Convertible Reserved Instance Pricingyou can grant up to 66% discounts on instance types, tenancy types and operating systems of your RIs during the contract period.

How savings plans can youPay all RIs upfront, partially upfront, or monthly with no down payment. Of course, the more you pay upfront, the greater your savings. See theDifferences between AWS Savings Plans and Reserved Instances here.

Top: If you want to automatically optimize your RIs and savings plans, tools likeProsperOpscan help you to do this continuously. Check out this chart from ProsperOps that shows an overview of the differences between AWS SPs and RIs:

Something else. AWS OfferingsReserved Instance volume discountswhen purchasing a large quantity of EC2 RIs in a specific AWS Region (e.g. 5% for $500K to $4M and 10% for $4M to $10M).

You can learn more about itwhen it's best to use the Reserved Instance pricing hereAndBest practices for optimizing AWS RIs can be found here.

4. Amazon EC2 Spot Instance Pricing

EC2 spot pricing is by far the cheapest, saving you up to 90% off standard pricing. With this pricing method, you can use excess EC2 compute capacity for yourself until AWS reclaims it for other customers.

Spot prices are not fixed. There is a bidding process for them, and AWS constantly adjusts them based on market demand in different Availability Zones. You only use them when your bid (ask price) is higher than the spot price offered.

Here's the compromise. When others beat you at your maximum price, or when demand increases and supply decreases, AWS discontinues your Spot Instances. For fault-tolerant applications, this disruption can result in a service disruption.

Additionally, after Spot Instances are reclaimed, Amazon EC2 automatically switches to the more expensive On-Demand pricing, which can break your budget.

Now you could manually configure the hibernate or pause-stop features to mitigate the risks. Running multiple instances or use cases can be overwhelming and time consuming. Fortunately, tools likexosphereAutomate switching between Spot Instances so you can take advantage of Spot pricing.

See theHere are the best use cases for spot pricing.

5. Pricing for Dedicated Hosts

A dedicated host is essentially a physical server that provisions instance capacity specifically for you. This EC2 pricing method combines the resilience and flexibility of the AWS public cloud with the cost savings of using your own licenses (e.g. your Windows SQL Server license).

The plan bills users based on the On-Demand plan per hour, not per second. However, if you buy them on a reservation basis for a year or three, you can save up to 70% off hourly On-Demand rates.

You can also save up to 72% on Dedicated Hosts over On-Demand pricing when you use Dedicated Hosts Savings Plans.

This pricing approach makes sense for organizations looking to maintain compliance or minimize hardware sharing for security reasons.

6. Additional costs to be considered

Yes, there are other variables that need to be factored into your Amazon EC2 pricing scheme. AWS charges for additional services associated with this, such as block storage, outbound traffic, premium support, load balancing, and IP addresses.

It is difficult to predict these costs as they change over time based on usage. So how do you understand, control, and optimize your Amazon EC2 costs with all these variables to consider?

Here's how to understand, control, and reduce costs of Amazon EC2 immediately

Start improving visibility into your AWS cloud costs so you can see where your money is going. You can then drill down into your AWS cloud bill to see how much you're spending on Amazon EC2. If you want to understand who, what and why your EC2 bill is increasing, you can zoom in and out on your EC2 price insights using unit economics.

Unfortunately, native AWS cost tools like AWS Cost Explorer and Cost and Usage Reports only provide an overview of your costs.

Cost and usage reports are notoriously difficult to navigate due to their Excel-like layout and hundreds of thousands of rows and columns.

Cost Explorer primarily shows total costs and averages over time—not how specific dimensions in your organization contributed to your cloud bill.

Therefore, it is difficult to decide where to cut costs or where to invest more.

Additionally, these tools require hours of tagging and retagging of your EC2 resources just to understand your costs.

Get unit cost information with CloudZero

CloudZerodiffers from other cloud cost optimization tools for AWS. CloudZero's cloud cost intelligence platform captures, analyzes and shares your costs in the context of your business as follows:

• Easily view your AWS costs by customer, team, environment, deployment, project, product, and function. This will help tell you how to profitably price your services.
• Get a detailed view of how your people, products, and processes impact your Amazon EC2 costs. So you can say exactly who, what and why your costs are changing.
• You canFind out where you can save money because you can see where your money is going. For example, you can determine if the cost of supporting free users is hurting margins. In this case, you can reduce the duration of the free plan to a 30-day or 14-day free trial.
• Identify exactly where you should increase investments. For example, you can identify which customer segments or software features are most profitable, leading to better ROI when you increase their productivity.
• Combine your AWS costswith cost data from Azure, GCP, Snowflake, Kubernetes, New Relic, and other vendors to analyze in one place.
• Get non-disruptive notifications through Slack in near real-timewhen your usage hits a certain threshold to ensure you stay within your budget.

CloudZero offers even more, including budgeting and forecasting, AWS Savings Plans and RIs dashboard, and integrations with robust tools to optimize your Amazon EC2 costs.

Will CloudZero save you $2.4 million annually like we did for our client Drift?find out.

Frequently asked questions about Amazon EC2 pricing

How much does EC2 cost per month?

This depends on the selected billing method and other factors, e.g. B. instance type, instance size, operating system, tenant model, region and availability zone, and whether you use load balancing.

What are the main pricing options for Amazon EC2 instances?

EC2 offers five pricing options: On-Demand, Savings Plans, Reserved Instances, Spot pricing, and Dedicated Hosts pricing. Other costs include outbound data transfers, premium support, and block storage costs.

Is Amazon EC2 free?

EC2 pricing includes a free tier that provides 750 hours of Linux or Windows t2.micro instances (or t3.micro if the t2 instance family is not available) per month for one year.

What is the cheapest EC2 instance type on AWS?

Compared to other instance types, general purpose T2 instances are relatively inexpensive. Your specific use case may change this.