Cloud Cost Unit Economics

When technology-driven initiatives raced to leverage cloud agility, business needs were left behind, making it challenging to connect cloud spending back to business profit and loss. Understanding cloud spend is a struggle as the variable, on-demand, and ephemeral nature of cloud computing has wreaked havoc on traditional budget and forecast planning processes.

The elastic nature of the cloud is a double-edged sword that promises incredible business agility but also requires new ways of analyzing the cost/benefit ratio.

So how do you quantify the cost of cloud infrastructure? Through the use of cloud unit economics.

FinOps.org defines cloud unit economics as “a system of profit maximization” that measures the revenue and cost of cloud-based software based on a unit measure defined by the business, such as a cost per customer or cost per transaction. Understanding the difference between marginal revenue and marginal cost is ‘one of the most effective ways to make data-driven business decisions regarding your cloud investment.’

Cloud unit economics ensures that we can drive cloud spending directly to the business value that it creates. In this technical paper, we’ll help you de-mystify cloud spend with details on how to:

• Track cloud account costs to determine the average cloud cost per customer
• Leverage metrics and tracing data from a running application for unit cost calculations
• Understand how cloud costs change with customer volume
• Allocate shared costs to build a more accurate view of cost per customer