One of the main challenges or complexities of cloud adoption is the inability to put resources to efficient use and this as a consequence produces cost inefficiency. Businesses quickly experience a rise in cost when a cost management strategy or FinOps isn’t put in place to track spending, maintain cost efficiency or identify resource utilization opportunities that can help beat down cost of operating cloud platforms and infrastructure.
In the absence of a formal FinOps or cost optimization strategy, cloud expenses can quickly spiral out of control for companies. According to analysts from Gartner, organizations without cloud cost optimization measures in place may overspend by up to 70%. In light of this, ramp plans have emerged as essential tools for effectively managing cloud resources and containing costs.
Indeed, while a ramp plan can demonstrate how to efficiently expand your environment and scale workloads, its execution is paramount to achieving success. Below, we delve into what companies should prioritize to thrive with ramp planning, along with strategic advice for addressing any unique needs that may arise along the way.
What it means to ramp up
At its core, a ramp plan involves tracking data on how your organization utilizes cloud resources compared to what it commits to with a cloud service provider (CSP) or reseller. By committing to spend a predetermined dollar amount, you can qualify for discounts or incentives. For instance, achieving a 50% increase in consumption by year-end might earn a 10% discount from a CSP on compute workloads. However, there are risks involved: the company remains obligated to pay the committed figure, even if it utilizes fewer resources than initially projected.
Certainly, while minimizing unnecessary expenditure is crucial, CSPs, including major hyperscalers like Amazon AWS and Google GCP, prefer to see customers acquire what they require and expand their footprint. For certain organizations, enlisting a partner to aid in spend forecasting may be the solution. Addressing questions regarding resource requirements, historical usage patterns, anticipated growth, potential acquisitions, and more is essential. Additionally, considerations such as product and service offerings must be examined. For instance, if a subscription app experiences rapid growth, adequate planning is necessary to ensure the availability of resources to meet increased demand.
Compiling and projecting this data can indeed be challenging, yet it is essential for developing a ramp plan and budgeting effectively. Previously, this process relied on time-consuming manual research, extensive spreadsheets, and complex algorithms. However, technology has evolved to automate, streamline, and scale this process. For many businesses, the optimal approach is to partner with a provider possessing in-house capabilities and a wealth of expertise to leverage these technological advancements effectively.
A ramp plan should, preferably, be formulated before making any commitments. It should undergo regular extensive review, ideally on a quarterly basis, involving the C-suite and relevant technical executives, and adjusted as needed. Typically, CSPs prefer signing customers to contracts lasting more than a year, with three-year terms being the standard.
Partnering With Third-Party Resellers & The Requirements
Partnering with a third-party reseller or directly with a hyperscaler ultimately boils down to personal preference. While big companies and hyperscalers often have stringent bureaucratic processes and requirements, opting for a tactical agreement with a hyperscaler like AWS might entail purchasing tactical support. While this may yield financial incentives, the cost of enterprise-level support could potentially offset those benefits. Thus weighing the pros and cons carefully prior to making a decision is crucial.
In a similar vein, cloud services resellers and partners play a crucial role in helping hyperscalers expand their businesses, often benefiting from special arrangements that reduce support costs. When working with a third party, the development of ramp plans typically involves less complexity compared to registering directly with a CSP. These services are particularly tailored for smaller companies that larger CSPs may not have the resources to accommodate. Third-party providers often offer more personalized services aligned with customer needs, including flexible usage options, optimization strategies, and enhanced security measures. Additionally, these partners tend to negotiate more effectively, leveraging their understanding of the ecosystem and adeptness in navigating various levers to achieve favorable terms.
Measuring Success
Measuring and tracking the success of a ramp plan can be challenging. While meeting commitments and optimizing cloud spend are crucial, profitability serves as the ultimate measure of success. Assessing whether costs are being absorbed or new customers are being acquired, and evaluating the impact on margins, are key indicators. Additionally, applying unit economics can help determine if resources are generating profits. Overall, profitability serves as a comprehensive metric to gauge the effectiveness of a ramp plan.
Absolutely, making a commitment and engaging in ramp planning should encompass more than just financial incentives. There may be other strategic objectives you aim to achieve. From defining service-level agreements to ensuring robust support, there are numerous elements that can be incorporated into a commercial contract. Benefits can manifest in various forms, and when combined, they have the potential to elevate cloud success to new heights. It’s essential to consider a holistic approach to contract negotiations to maximize the value derived from cloud services.
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