Amazon EC2 Pricing Explained: An EC2 Cost Tutorial

Amazon Elastic Compute Cloud (EC2) is one of the most popular cloud computing services offered by Amazon Web Services (AWS). EC2 provides scalable computing power, allowing businesses to run applications and manage computing resources without having to invest in expensive hardware. With EC2, users can scale their resources according to their needs, and only pay for what they use. This flexibility in pricing makes it a go-to solution for companies of all sizes, offering cost-effective cloud computing options.

In this guide, we’ll explain how Amazon EC2 pricing works, the different pricing models available, and how you can save on EC2 costs.

How is AWS EC2 Priced?

Amazon EC2 uses a pay-as-you-go-pricing model, which means you pay only for the services you use. This means you don't have to pay for hardware, and you only have to pay for the instances you use. With this model, businesses can move from capital expenditures (CapEx) to operational expenses (OpEx), making cost management simpler.

Key Components of Amazon EC2 Costs

• Server Time Charges: Billing starts when your EC2 instance is launched and continues until it's terminated. Additionally, charges apply when you allocate an Elastic IP address until it’s released.
• Instance Type Selection: EC2 instances come in various configurations, such as CPU, memory, networking, and storage. Your choice of instance impacts the overall pricing.
• Number of Instances: The more instances you run simultaneously, the higher the cost.
• Elastic Load Balancing: AWS provides Elastic Load Balancing to distribute incoming traffic across EC2 instances. The usage of load balancing adds to your monthly expenses.
• Software Licensing: Costs will depend on whether you use AWS-provided licenses or bring your own.

Amazon EC2 Instance Pricing Models

Amazon EC2 offers a variety of pricing models to suit different needs. These models allow users to optimize costs based on workload requirements, budget, and usage patterns.

EC2 Free Tier

AWS provides a free tier for new customers, offering up to 750 hours per month of t2.micro instances for the first 12 months. This gives you the opportunity to try EC2 without incurring any charges. It includes the t2.micro instance for running applications and workloads that don’t require too much computing power.

EC2 On-Demand

On-Demand instances are the most flexible pricing option. You only pay for the computing capacity you use, with no long-term commitments. This option is perfect for short-term workloads or workloads that are unpredictable.

• Billing method: Pay per hour or per second (for Linux instances).
• Use case: Best for applications with variable workloads or testing environments.
• Key features: No upfront costs, flexible scaling, and easy to adjust as per your requirements.

Spot Instances

Spot Instances let you use unused EC2 capacity at a lower price, offering savings of up to 90% compared to On-Demand pricing. However, the downside is that AWS can terminate Spot Instances with short notice (usually 2 minutes), so they are best for flexible and fault-tolerant applications.

• Billing method: Pay per hour or per second.
• Use case: Ideal for cost-sensitive applications that can handle interruptions.
• Key features: Significant cost savings, flexible start/end times.

Reserved Instances (RIs)

Reserved Instances offer significant savings (up to 75%) over On-Demand pricing if you commit to using EC2 for 1 or 3 years. This model allows you to reserve capacity in specific availability zones and lock in a discounted rate.

• Billing method: Pay per hour.
• Use case: Best for predictable, steady workloads.
• Key features: Discounted pricing for long-term commitment, capacity reservation.

Dedicated Hosts

Dedicated Hosts provide physical EC2 servers for your exclusive use, which is useful for customers with specific compliance requirements or those who want to use their existing software licenses. Unlike other EC2 instances, a Dedicated Host gives you more control over the server.

• Billing method: Pay per hour.
• Use case: Suitable for running workloads that require dedicated resources and compliance with licensing.

To Learn How to Create EC2 instance in AWS Click here

Amazon EC2 Cost Components

When using Amazon EC2, several cost components contribute to your overall pricing. These include:

• Server Time Charges: Charges begin when your instance is launched and continue until it is terminated.
• Instance Type Selection: EC2 instance types vary based on resources like CPU, memory, and storage. Choose an instance that matches your specific workload.
• Number of Instances: The more instances you run simultaneously, the higher the cost.
• Elastic Load Balancing: Distributes traffic across EC2 instances. It adds to your monthly cost based on usage.
• Monitoring Features: Basic monitoring is free, but detailed monitoring through CloudWatch incurs a fixed monthly charge.
• Elastic IP Addresses: AWS offers one free Elastic IP address per running instance, but additional IP addresses may incur charges.
• Software Licensing: Charges depend on whether you use AWS-provided licenses or bring your own.

Estimating Costs with the EC2 Pricing Calculator

AWS provides an EC2 Pricing Calculator to help you estimate costs based on your usage. It allows you to configure various parameters like instance types, storage options, and additional services to get an accurate cost estimate.

How to Use EC2 Pricing Calculator:

• One-Time Estimate: A quick way to estimate costs for EC2 resources.
• Advanced Estimate: This provides a more detailed evaluation, factoring in data transfer costs, storage types, and other factors

Different Ways to Save on Amazon EC2

There are several ways to reduce your EC2 costs and ensure you're getting the best value for your money.

1. AWS Savings Plans

AWS Savings Plans offer discounts of up to 72% when you commit to a consistent level of usage over a 1-3 year term. These plans apply to EC2 instances across all regions, instance families, and operating systems.

Saving Plans vs EC2 RI

• Savings Plans: Flexible, applies to various EC2 instance types across regions.
• EC2 Reserved Instances: More rigid, applies to specific instance families and regions.

2. Amazon EC2 Auto Scaling

EC2 Auto Scaling adjusts the number of EC2 instances in use based on the demand for your application. It helps reduce costs by scaling instances up or down based on actual usage, ensuring you’re not paying for unnecessary capacity.

Learn more in our detailed guide to EC2 Auto Scaling.

3. AWS Compute Optimizer

AWS Compute Optimizer analyzes your historical usage to recommend the best EC2 instance types based on your workloads. By using machine learning, it helps optimize costs and enhance performance by suggesting more efficient instance types.

4. Leveraging EC2 Spot Instances

EC2 Spot Instances offer a way to save up to 90% compared to On-Demand prices. While they can be interrupted by AWS, Spot Instances are ideal for non-critical workloads that can tolerate interruptions. They are cost-effective for tasks like batch processing or testing.

Conclusion

Amazon EC2 provides businesses with powerful and flexible cloud computing options through various pricing models like On-Demand, Reserved, Spot Instances, and Dedicated Hosts. By understanding how EC2 pricing works and utilizing tools like the AWS Pricing Calculator, AWS Savings Plans, and EC2 Auto Scaling, you can manage costs effectively. For businesses with variable workloads or those looking to optimize their cloud spend, leveraging EC2 Spot Instances and the AWS Compute Optimizer can lead to significant savings while ensuring performance.

With the right strategies in place, Amazon EC2 can provide a cost-effective solution for your cloud computing needs.