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As more organizations move workloads to the cloud, Microsoft Azure has become a go-to platform for its scalability, performance, and global reach.
However, Azure’s expansive landscape may be a challenge when right-sizing to your environment. We find that organizations usually have an inefficient mix of services with significant overspend on cloud services.
In our workshops, we typically uncover an average of 30% overspend — not a small chunk of change. This guide outlines the common components of Azure pricing, identifies key areas where organizations frequently overspend, and a road map to fix it. If you’re looking for hands-on support, check out our Managed Services to see if Hypershift can help you take the next step.
The many studies on cloud cost optimization concur on multiple points:
For IT leaders, this excess spend represents capital that could otherwise fund innovation initiatives or strategic performance enhancements across the organization.
Azure operates on a consumption-based pricing model, where customers pay only for resources they use. While this approach offers flexibility, it requires vigilant and ongoing monitoring to ensure cost targets are attained.
Here’s how Azure charges for its core services:
Compute resources form the foundation of Azure environments and come in several configurations:
Virtual Machines represent the core computing infrastructure, with costs varying based on specifications (CPU, RAM), chosen region, and operating system type. Higher performance specifications and premium regions can require higher pricing.
App Services provides a managed platform for web applications and APIs. Pricing tiers range from Free and Shared environments, suitable for development, to Premium tiers, which are optimized for production workloads.
Container services, including Azure Kubernetes Service, offer scalability but require careful monitoring as clusters can expand rapidly due to a variety of factors including resource overestimation, with costs accruing for each additional node.
Azure Functions deliver serverless computing capabilities that charge based on execution frequency and runtime duration. This model can provide significant cost advantages for intermittent workloads compared to continuously running services.
Azure provides multiple storage options tailored to different data management requirements:
Azure Blob Storage serves as a repository for unstructured data including media files, documents, and backups. This solution scales with growing data volumes.
Disk Storage delivers managed disks essential for virtual machine operations, providing persistent storage for computing resources.
File Storage offers network file sharing, enabling multiple services and applications to access shared data simultaneously.
For cost optimization, Azure provides Archive and Cool storage tiers designed for infrequently accessed data, offering substantial savings compared to Hot storage tiers.
Several factors influence storage pricing, including total data volume (measured in GB/month), selected redundancy level (LRS, GRS), operation frequency (read/write/delete transactions), and chosen access tier. Mapping these variables to your organizational needs enables more effective cost planning.
Networking services can also be a source of inefficient spend without proper planning:
Data transfer costs, particularly outbound data (egress), can accumulate rapidly when moving information between regions or to external destinations. These costs are frequently overlooked in initial budgeting.
Premium connectivity options such as VPN Gateways and ExpressRoute provide enhanced reliability and performance but come with corresponding price increases that should be factored into planning.
Load Balancers and Firewalls incur charges based on rule complexity and data processing volume, integrating architectural decisions with cost considerations.
Microsoft software licensing in Azure environments offers two primary approaches:
Licensing options include bundled software costs with Azure services, providing convenience but with potential total cost considerations.
Azure Hybrid Benefit allows organizations to leverage existing licenses (also known as BYOL: Bring Your Own License) in cloud deployments, offering potential cost reductions for those with eligible Software Assurance coverage.
Despite understanding individual service pricing structures, many organizations simply don’t know where to start when it comes to optimizing Azure spend for their IT environments. Common Azure inefficiencies that go unnoticed include:
A significant driver of unnecessary spend is virtual machines (VM) that remain operational during periods of inactivity or VMs provisioned with excessive resources relative to workload requirements. Unused computing capacity represents a planning, management, and cost challenge.
Recommendation: Implement Azure Advisor recommendations to analyze utilization patterns and right-size resources accordingly. For development and testing environments, configure automatic shutdown schedules during non-business hours to minimize runtime costs.
Maintaining infrequently accessed data in premium storage tiers creates ongoing cost inefficiencies that can accumulate over time.
Recommendation: Implement Blob lifecycle management policies to automatically transition data to more cost-effective Cool or Archive tiers based on access patterns and retention requirements.
Cross-region data transfers and external egress traffic generate significant expenses that often go unmonitored in many Azure deployments.
Recommendation: Architect solutions to minimize cross-region data movement and leverage Azure Content Delivery Network (CDN) to optimize external data distribution while reducing bandwidth costs.
Organizations operating consistent workloads miss substantial savings opportunities when using exclusively pay-as-you-go (PAYGO) pricing for predictable resource consumption.
Recommendation: Evaluate Reserved Instances with one or multi-year commitment terms. Also evaluate Azure Savings Plans, which can deliver cost reductions compared to on-demand pricing for stable workloads.
Insufficient and inconsistent cost tagging prevents accurate cost allocation and adversely impacts targeted optimization efforts.
Recommendation: Establish comprehensive tagging standards across departments and implement Azure Cost Management + Billing to create visibility and accountability for resource consumption and set alerts.
FinOps (Financial Operations for Cloud) is an operational framework that brings long-term financial accountability to cloud spending. FinOps bridges the gap between finance, technology, and business objectives through organizational collaboration and shared cost accountability while maintaining cloud speed and agility.
FinOps can apply to organizations of any size. With FinOps frameworks reducing cloud waste by up to 40%, it becomes an important component of long-term Azure cost management.
1. Centralized Visibility and Ownership: Establishing centralized cost monitoring across departments ensures that all stakeholders have appropriate visibility into resource consumption and associated expenses.
2. Cost Allocation and Chargeback Models: Implementing comprehensive tagging and cost allocation frameworks enables organizations to attribute Azure expenses to the appropriate business units, creating accountability for cloud consumption.
3. Continuous Optimization Cycle: Effective FinOps implementation requires establishing a regular cadence of reviewing spending patterns, identifying optimization opportunities, and implementing improvements.
4. Organizational Transformation: Beyond tools and processes, FinOps represents an organizational planning shift where engineering teams take ownership of cloud costs alongside performance and functionality considerations.
While FinOps maturity and best practices exceed the scope of this article, understanding the evolution of Azure and cloud management costs towards FinOps practices is an important organizational consideration for planning.
While this article primarily focuses on Azure-based environments, many organizations have adopted multi-cloud strategies incorporating Azure alongside other leading platforms such as AWS or Google Cloud. Multi-cloud environments present the opportunity to gain up to and exceeding 30% savings relative to single-platform optimization approaches, according to multiple studies, including Oracle and Forbes.
Ensuring cloud investments are optimized holistically rather than in silos presents unique challenges and opportunities. Common sources for savings stem from the elimination of redundant capabilities across providers, strategic workload placement, and standardized architecture.
Inconsistent Pricing Models: Each cloud provider implements different and evolving pricing structures and discount programs, creating complexity in cost comparison and optimization.
Fragmented Visibility: Organizations frequently struggle to obtain cost visibility across existing platforms, leading to ineffective projections leading to even more overspending on Azure.
Duplicated Resources: Without proper review and governance, similar workloads may be deployed across multiple platforms, creating unnecessary redundancy and cost inefficiency.
Knowledge Requirements: Each cloud platform requires specialized knowledge for optimization, increasing staffing knowledge demands or limiting optimization effectiveness.
Workload Placement Optimization: Analyzing current and projected application requirements against cloud pricing models allows organizations to strategically place workloads on the most cost-effective platform.
Unified Cost Management Platform: Implementing a centralized solution that aggregates spending data across cloud providers enables comprehensive optimization in decision-making, including ongoing monitoring and rationalization.
Cross-Platform Resource Governance: Establishing consistent tagging standards and governance policies across cloud environments reduces manual reconciliation processes and waste.
Standardized Architecture: Implementing consistent deployment frameworks (e.g. sizing tiers) across platforms simplifies decision-making, and enables effective cost benchmarking.
For organizations operating in multi-cloud environments, the significant cost savings opportunities can be an initial driver for optimization. Many organizations are also drawn to the ability to make ongoing economically sound architectural decisions as cloud offerings and pricing models continue to evolve across cloud vendors. However, per above, the road to optimization requires strategic guidance to avoid common challenges.
❗Note: Regulatory compliance requirements can significantly influence Azure and multi-cloud architectural decisions, often necessitating premium services or configurations that impact costs. Organizations will need to assess their unique requirements (e.g. data residency, retention policies, and security controls), which may play an important factor in vendor capability selection.
Microsoft Enterprise Agreement (EA): For large enterprises spending over $500,000 annually on Azure services, a Microsoft Enterprise Agreement may provide discounts of approximately 20%.
Cloud Solution Provider (CSP): As a Microsoft Cloud Solution Provider, Hypershift offers significant volume discounts to our customers. Please contact us for custom pricing.
At Hypershift, we help IT leaders take control of their Azure spend. From cost audits and optimization plans to ongoing managed services, we simplify your cloud operations and help you get more from your investment.
Whether you're migrating to Azure or looking to rationalize your current environment, our team can help you:
Want to know how much you're overspending in Azure? Let’s find out together.
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