What You Need to Know About Cloud Costs and Pricing Models
by February 23, 2017

Filed under: Cloud Computing, Performance Monitoring

On the topic of cloud finances, we’ve got some good news and bad news for you. First, the good news: IT teams are poised to become in-house cloud brokers and experts, with a stake in big business decisions. The bad news, however, is that you, as an IT team member, have to learn more about finances than you likely have in the past.

Learning the essentials will help you become invaluable and gain a voice in the boardroom. It’ll also help you keep control over all the apps and services you’ll still have to support, whether in-house or off-premises. 

These four aspects of cloud costs and pricing models should give you a solid start.

  1. Pricing. In just a few years, tech licensing models have been totally upended. To get a handle on cloud pricing models, identify your base units first. Pricing varies by app, but most models are based on some unit of usage over some period of time. So that usage might be the number of API calls, the number of users, number of reports or some other vendor-specific unit. Note that users or headcount falls into this category, too. For example, if headcount increases or decreases, how will that affect monthly billing and the pricing tiers spelled out in your contract? Negotiate with both best- and worst-case scenarios in mind.
  2. Forecasting. This is an essential part of cloud finances, since when you’re starting out with SaaS or with a new app, you won’t have any data to reference. When you are looking at SaaS pricing, consider various scenarios in the next year or more at your company. Start by assessing the likelihood of change in staffing or business growth. Benchmark historical use as best you can, so you’re starting with some kind of baseline. From there, leave some room to scale. For some companies, calculating the IT cost per employee is a useful way to gauge current and future technology needs across the workforce (plus, it’ll endear you to finance and HR). And make sure you pre-negotiate pricing and discount tiers so you’re never surprised by the monthly bill, and so your cloud workloads are optimized to scale
  3. SLAs. Continue to think ahead when you’re negotiating SLAs. There are a lot of variables usually addressed in service-level agreements, like usage, performance guarantees, penalties and more. So start by identifying the variables involved in your particular SLA situation. Then identify the violation penalties, decide on which metrics to include and track, and spell out the financial motivators involved. It’s not always easy, but try to level the playing field where you can. For example, read the fine print on recurring problems to make sure it’s not too easy for service providers to ignore issues.
  4. Relationships. The IT team is still in charge of tech expertise, even with the growth of shadow IT and the ease of downloading apps and using the cloud. So make sure you’re educating the broader organization on the true costs of SaaS and cloud—and proving IT’s business value in the process. Get to know the finance and procurement departments in your organization so you can understand the overall buying process and make sure IT isn’t a roadblock. And, finally, get in the habit of making a business case for every new product that IT needs. Figure out the end users’ needs and how the product can meet them, and improve the business too.