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Ben MinkinJan 7, 2025 11:58:12 AM4 min read

What Determines Your Azure Spend & How to Optimize It

As we enter 2025, it is crucial for organizations to understand exactly where each dollar of their IT budget is being spent. One area we are noticing a common trend of overspending is on Azure.

If companies are not aware of where their Azure spend is coming from, vendors can often get away with charging over MSRP rates, resulting in bills that add up very quickly.

We’ll take a deeper dive into the different components that make up a company’s Azure spend, and how to optimize it.

 

Compute Costs & How to Optimize Your Spend


The compute costs component of Azure spending includes fees for Virtual Machines, containers, and other compute resources intended to offer flexibility and scalability for diverse applications and workloads.

Essentially, this is the sum of all the virtual machines instances, which include applications being utilized or other events of a similar nature. This is typically the most significant cost, as on average it is responsible for 50-70% of an organization’s Azure spend.

These costs are generally variable from month to month, but savings can be realized by utilizing reservations, which refer to one-year or three-year commitments at a fixed cost. This can be a double-edged sword, as organizations with highly variable compute costs may be better off on the traditional “pay as you go” model.

There is also a feature called “auto-scaling” which scales the amount of compute resources depending on the current demand, which is designed to ensure nothing is paid for unnecessarily.

 

Are you considering migrating your operations to the cloud but unsure where to start? Take advantage of our complimentary offer to gain insights into cloud migration planning and costs.

 

Storage Costs

Storage costs in Azure refer to data storage, which can be in the forms of blob storage, disk storage, or file storage. The cost is determined by the amount of data storage (measured in GB).

There are different tiers of storage available (Hot, Cool, Archive) with hot being the most expensive but offers the quickest access, with cool and archive being more cost-effective, but having much higher access times (Hot has an instant retrieval, whereas archive can take hours). There are also additional fees that can be incurred for transferring/retrieving data, as well as for geo-replication (replicating data across multiple Azure regions)

This is generally a more stagnant cost, as the amount of data is the biggest predictor of how much this will cost. Choosing the right tier of storage is crucial, as data that is not needing to be readily available can be stored in a lower tier. Our recommendation is to implement data lifecycle management policies, which automatically moves data between different tiers based on its age & access frequency.

To determine if migrating to the cloud is the best decision for your business, check out our Definitive Guide to Microsoft Azure Proof of Concept (POC).

Networking Costs

Networking Costs refer to data transfer, virtual network (vNET), VPN, load balancer, application gateway, Azure firewall, & content delivery network (CDN) costs. Data transfer costs are generally for outbound transfers, with in bound data transfers being generally free. Features such as application gateway, Azure firewall, and content delivery network are native security features, which filter traffic coming through the environment.

Similar to the storage costs, these are generally stagnant costs, but with the opportunity to marginally reduce these costs by using VNet peering, which allows you to connect vNets within the same region or across, which is typically more cost-effective in addition to providing improved latency over the traditional gateway methods.

 

Security, Monitoring & Licensing Costs


The final piece to the Azure puzzle is the resources required to ensure the other aspects of Azure spend are secure and functional for the end user. This piece can include Microsoft Defender for Cloud or Microsoft Copilot for Security, which are tools that can be leveraged to protect data in the cloud, as well as proactively respond to threats.

Azure Monitoring is also an option, and it is priced in pay as you go model (dependent on data ingestion & retention). Azure Monitoring provides alerts on events that deviate from the norm – whether that is overuse of resources, or a potential security threatening event.

The licensing costs refer to costs for Azure VMs and SQL database, as well as any Dynamics365 or M365 licensing costs needed for the end user.

The best strategy for limiting costs here is to bundle services. Microsoft’s M365 E5 license includes defender for cloud, Entra ID Plan 2 (formerly known as Azure Active Directory Plan 2). In addition, Microsoft 365 includes Power BI Pro, which can be leveraged as a tool to automate workflows among the end-user and subsequently cut compute costs by lowering the number of resources needed to perform day-to-day tasks.

Conclusion

Reducing your Azure spend is a comprehensive task, with lots of minor optimizations that add-up to big picture savings. Ensuring that you are only paying for what you actually need is crucial. Having an unoptimized Azure spend can cost your organization thousands (if not tens of thousands) of dollars.

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Ben Minkin

Ben is a Business Development Team Lead at Datalink Networks, with a passion for content and providing value through information. He is in the final year of his bachelor's degree in marketing at California State University of Northridge. Ben prides himself on creativity, innovation, and building and maintaining relationships.

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