The cloud is great, but cloud costs can quickly spiral out of control. In this article, we will take a look at Microsoft Azure cost management, sharing some of its more useful features and some best practices to optimize Azure cost.
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Azure Cost Management is a suite of tools and features provided by Microsoft that helps you monitor, manage, eliminate waste, and optimize cloud spending. It allows users to track costs, set budgets, and forecast future expenses based on current usage trends. The platform provides insights into resource utilization and spending patterns across Azure services to help you understand and control your costs in the Azure cloud environment and enables you to make informed decisions to ensure the cost-effectiveness of particular services.
When you sign up for an Azure subscription, you get access to cost management and billing by selecting it from the available Azure services on your homepage.
Azure Cost Management is free to use for managing Azure resources. However, you pay to use it to manage external cloud resources such as AWS; the costh is 1% of the total managed AWS spend.
What are the pricing models of Azure?
Azure employs three billing models:
- Pay-As-You-Go: This model charges users based on actual resource usage, billed per second, without any long-term commitment or upfront payments. It provides flexibility to scale resources as needed and is ideal for variable or unpredictable workloads.
- Reserved Instances: Reserved Instances require an upfront commitment of either one or three years. In return, users can receive discounts of up to 72% compared with Pay-As-You-Go pricing. This model is best suited for applications with consistent resource needs, offering predictable costs.
- Spot Instances: Spot Instances allow users to take advantage of unused Azure capacity at reduced prices. However, these instances can be interrupted if Azure needs the resources back, making them suitable only for workloads that can tolerate interruptions.
If you have an Azure subscription, the free native Azure cost management tool is a no-brainer. Cost management is often overlooked as you dive straight in and start spinning up services, but it pays (literally) to take some time to explore it and set up some controls.
Some third-party services add additional cost management capabilities and handle costs from multiple cloud providers. This is a big advantage if you are looking to view costs from multiple clouds on a single pane of glass.
One such tool was Cloudyn, which was acquired by Microsoft and later integrated into Azure Cost Management. CloudHealth by VMware, CloudCheckr, Apptio Cloudability, and RightScale Optima are all popular choices.
Benefits of using Microsoft Azure cost management
Here are the top benefits of using Azure cost management services:
- Cost visibility and control – Azure Cost Management provides comprehensive dashboards and tools to monitor spending across your resources. With detailed cost breakdowns, you can set budgets and receive alerts, ensuring you stay within financial limits.
- Budgeting and forecasting – You can create and manage budgets, forecast future expenses, and align spending with organizational goals.
- Cost optimization recommendations – Azure Cost Management identifies underutilized or idle resources and suggests actions like resizing VMs or using reserved instances.
- Multi-cloud and hybrid environment support – Azure Cost Management supports cost tracking not just for Azure resources but also for AWS and hybrid cloud setups, making it easier for organizations to manage their expenses in complex cloud environments and make informed decisions about resource allocation.
- Customizable reports and analytics – Custom reports improve transparency and enable stakeholders to make data-driven decisions to stay within budget.
Costs in Azure are largely determined by the following:
| Factor | Description | Impact on cost |
| Number of resources provisioned | The total count of Azure resources (e.g., VMs, databases, storage accounts) deployed in your subscription. | The more resources provisioned, the higher the overall cost. |
| Sizes (or SKUs) of resources | The specific size or SKU of each resource (e.g., virtual machine size, database tier) | Larger or higher-tier SKUs cost more, while smaller or lower-tier SKUs cost less. |
| Resource utilization | The level of usage for each resource, such as CPU hours, storage IOPS, or database transactions | High utilization increases costs, while underutilized resources may still incur charges if not deallocated. |
| Data transfer and network costs | Costs associated with outbound traffic between Azure services, VNET peerings, or external networks via VPNs or internet | High data transfer rates, especially outbound traffic, can quickly increase expenses. |
| Storage costs | Expenses tied to the type of storage (e.g., standard, premium), capacity, and operations (e.g., reads, writes, and retrievals) | Larger capacity, premium tiers, or frequent operations result in higher storage costs. |
| Geographic region | The Azure region where the resource is provisioned, as prices differ between regions based on factors like demand and operational costs | Some regions are more cost-effective than others; for instance, UK South is often cheaper than UK West for some SKUs. |
| Pricing plans | Discounts available through reserved instances, enterprise agreements, or other volume-based commitments | Committing to long-term use or higher volumes often results in reduced per-unit costs. |
Azure offers several tools and services to help manage and optimize costs effectively. nside the Azure portal, cost management is split into three main areas: Cost Management, Billing, and Products + Services.
1. Cost management
Cost analysis
The Cost Analysis section in Azure Cost Management provides a detailed analysis of your Azure spending and helps you understand how your costs are distributed across various services, resources, and dimensions.
It offers insights into your Azure usage and spending patterns, allowing you to identify cost optimization opportunities, make informed decisions, identify spending patterns, understand cost fluctuations, and detect any anomalies or unexpected spikes in your Azure costs.
The interface provides interactive tools and filters to explore your costs and allows you to analyze their trend over time. You can view cost trends by day, week, month, or custom time periods. This feature helps you identify spending patterns, understand cost fluctuations, and detect any anomalies or unexpected spikes in your Azure costs.
Cost Alerts & Budgets
Putting some cost management alerts in place on your subscription should be one of the first ports of call when setting up a new Azure subscription.
In these sections, you can create and view budgets and set up anomaly alerts. As a best practice, you should set your budget here to get an email alert when the threshold you specify is reached.
Azure Cost Management also provides a cost forecasting capability based on historical data. It uses machine learning algorithms to project future costs, allowing you to estimate and plan your budget accordingly. This can be valuable for predicting and managing future expenses, and you can be alerted on predicted spend rather than actual.
Advisor recommendations
This section pulls the cost-related recommendations from Azure Advisor, listing things such as resizing or shutting down underutilized resources, leveraging reserved instances, or modifying service configurations. As a best practice, you should check this regularly for up-to-date recommendations.
2. Billing
Invoices
The invoices section allows you to download your monthly invoice as a PDF and shows historical invoices and upcoming billing dates.
Payment methods
Add or modify your billing methods, or pay by wire transfer.
Payment History
View a timeline of previous payments and the details.
Reservations
Two types of transactions can occur in Azure reservations: billed transactions and unbilled transactions.
Billed transactions refer to the actual usage or consumption of Azure resources covered by an Azure reservation. When you use an active reservation for a specific resource, such as a virtual machine or an SQL database, the usage is billed against the reservation. The associated costs are deducted from the reservation balance rather than being charged at the regular pay-as-you-go rates.
Billed transactions are typically visible on your Azure invoice or billing statement, showing the usage that has been applied against your active reservations. The reservation coverage is automatically applied to the corresponding resources’ usage, and the costs are adjusted accordingly.
Unbilled transactions are the usage or consumption of Azure resources that have not yet been invoiced or included in your billing statement. These transactions occur when you have active reservations, but the usage hasn’t been processed or accounted for in the current billing cycle.
Unbilled transactions can occur for various reasons, such as timing differences between resource usage and the billing cycle, delays in usage data processing, or the reservation term not aligning perfectly with the billing period. Because these transactions have not been invoiced yet, they do not impact your current reservation balance.
Billing profiles
Billing profiles are a set of configurations that define the billing details and preferences associated with an Azure subscription. It includes information such as the billing address, payment methods, currency, and tax settings.
3. Products & Services
All Billing Subscriptions
View all subscriptions billed to your billing account, showing the plan and SKU for each. Recurring subscriptions such as your Azure support plan, Azure Marketplace purchases, and Microsoft AppSource purchases will show here.
Reservations + Hybrid Benefit
Currently, in preview, billing administrators can now see reservations purchased in their organization. You can also purchase reservations directly from this section.
Azure Hybrid Benefit is a licensing benefit that lets you bring your on-premises core-based Windows Server and SQL Server licenses with active Software Assurance (or subscription) to Azure and will show in this section when applied to your subscription.
Savings Plans
In this section, you can purchase or view existing savings plans. By committing to a consistent amount of usage for 1 or 3-year terms, you receive significant savings on compute resources as you use them. You can apply the savings plans to multiple different scopes, as shown in the screenshot below.
Azure subscriptions
This section will be removed shortly and replaced by the ‘All billing subscriptions’ section.
Recurring charges
Also to be replaced by the ‘All billing subscriptions section’.
4. Third-party tools
Although Azure provides native tools like Azure Cost Management + Billing, third-party tools can offer additional functionality, integration, and flexibility. Here are the most popular third-party tools for Azure cost management:
- CloudHealth by VMware: A robust platform for multi-cloud cost management, offering detailed cost analysis and automation for optimization
- CloudCheckr: Comprehensive cost tracking with integrated compliance, governance, and security features for Azure environments
- Spot by NetApp: Leverages predictive analytics and automation to optimize Azure workloads and reduce costs, especially with Spot Instances
To enable Azure cost management, you will need to click on the menu in the top left corners and select Cost Management + Billing:
Here you can view details about:
- Cost management – analysis, alerts, budgets
- Billing – invoices, payment methods
- Products and services – all billing subscriptions, reservations, saving plans
- Settings – properties, exports, cost allocation
To really leverage cost management, you should set up an export. This can be done from Settings → Exports.
From there, click on the “Create” option and select the kind of export you want; for this example, we will use “Cost and usage (actual)”
Then, fill in the required fields, such as export prefix, name, and frequency:
In the last step, you should specify the storage account destination in which the data will be saved, the data format, and the compression type:
As soon as you add the data, you can go to the review and create step and you will have everything up and running.
Here are some best practices for Azure cost optimization and management:
- Select the right service and use the correct service tier level –To start reducing your costs, you’ll need to make sure you have selected the right service for the job and provisioned it using the correct service tier level.
This is easier said than done and usually involves monitoring the service metrics to make sure the features you are paying for are being utilized and that the service capacity you have provisioned is being fully utilized whilst allowing for expansion. - Regularly monitor Azure resources fi Regular monitoring of Azure resources and usage patterns is crucial for effective cost management.
- Utilize Azure’s monitoring and reporting tools — Utilizing Azure’s monitoring and reporting tools, such as Azure Monitor and Azure Advisor, can help identify cost optimization opportunities, detect anomalies, and make informed decisions.
- Exploit the benefits of autoscaling in the cloud fi Once you have your resources monitored and on the correct service level and SKU, you can fully exploit the benefits of autoscaling in the cloud to save costs.
For example, your web app might scale down when the CPU is less than 70% to a lower tier that costs less to run and only scale up when the user demand is high and the CPU rises above 70%. - Tag your resources fi Tagging your resources is a good cost management practice that is a mechanism commonly used to provide better visibility and cost for resources and groups of resources. By associating tags with resources, organizations can track spending by departments, projects, or cost centers, allowing for more granular cost management and control.
- Leverage Azure Reserved Instances and Savings Plans — For predictable workloads, consider using Azure Reserved Instances (RIs) or Savings Plans to commit to using resources for a longer period (e.g., 1 or 3 years). These options can significantly reduce costs compared to pay-as-you-go pricing, especially for virtual machines and database services.
- Set up budgets and cost alerts — Use Azure Cost Management to create budgets and set cost alerts. This ensures you stay within predefined spending limits by receiving notifications when costs approach or exceed thresholds. It helps avoid unexpected expenses and promotes accountability within teams.
- Optimize storage and backup solutions — Regularly review your storage accounts and backup configurations to ensure you aren’t over-provisioning. Use tools like Azure Storage Lifecycle Management to move infrequently accessed data to lower-cost tiers (e.g., cool or archive storage), and delete unused snapshots or backups.
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Azure Cost Management is included with your Azure subscription at no additional cost. It provides powerful features to analyze, manage, and optimize your Azure spending, helping you maximize the value and efficiency of your cloud investments.
It’s important to understand everything cost management offers. Microsoft provides free training on cost management on the Microsoft Learn site, which is well worth reading or reviewing.
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