Cloud computing has become increasingly popular over the past few years, with companies of all sizes turning to the cloud to improve operational efficiency, reduce costs, and enhance their competitiveness. However, many organizations make the mistake of focusing solely on reducing expenses when it comes to cloud cost management, ignoring a crucial metric – cost of goods sold (COGS). In this blog post, I’ll discuss why COGS reduction should be the primary focus for companies looking to optimize their cloud costs.
Why COGS Reduction Matters
COGS, the direct cost of producing and delivering a product or service, directly affects a company’s bottom line and competitiveness. By reducing COGS, companies can improve operational efficiency, profitability, and competitiveness. But reducing expenses alone doesn’t guarantee these outcomes.
For instance, cutting cloud infrastructure to reduce expenses can hurt a company’s product or service quality and customer satisfaction. On the other hand, optimizing cloud infrastructure to reduce COGS can lead to improved performance, customer satisfaction, and profits.
Benefits of COGS Reduction in Cloud Cost Management:
- Improving operational efficiency: By reducing COGS, companies can lower costs and boost profitability through improved operational efficiency. For example, reducing the time to deploy new services speeds up time to market and competitiveness.
- Boosting profitability: COGS reduction directly impacts a company’s profitability by reducing the cost of producing and delivering products or services. With improved margins, companies can reinvest in growth and innovation.
- Enhancing competitiveness: Reducing COGS can enhance competitiveness by lowering prices and improving customer satisfaction. For example, reducing cloud infrastructure costs can make a company’s products or services more appealing to customers.
How to Reduce COGS in Cloud Cost Management:
Right-size cloud resources:
Over-provisioning cloud resources wastes money and creates inefficiencies. Right-sizing cloud resources reduces COGS by only using the resources necessary for running applications.
Automate and orchestrate:
Automation and orchestration cut time and effort in managing cloud infrastructure, reducing COGS. Automation also helps companies avoid manual errors that increase costs and decrease efficiency.
Use cost-optimized cloud services:
Utilize cost-optimized cloud services, such as EC2 Spot Instances or Preemptible Virtual Machines, to reduce COGS by using lower-priced cloud resources available on a first-come, first-served basis.
Monitor and optimize cloud costs:
Regular monitoring and optimization of cloud costs is essential for reducing COGS. Cost management tools, such as AWS Cost Explorer or Cloud Billing and Cost Management, offer insight into cloud costs and optimization opportunities.
Conclusion
Companies should focus on reducing COGS, not just expenses, to optimize their cloud costs. By reducing COGS, companies can improve operational efficiency, boost profitability, and enhance competitiveness. Cost-optimized cloud services, automation and orchestration, right-sizing cloud resources, and monitoring and optimization of cloud costs are key to maximizing cloud cost management through COGS reduction.
