What is a net savings rate?
Mar 8, 2022

What is a net savings rate?

Jim Gallagher

We are launching a new KPI that we report on our Segment Planner that we call the Net Savings Rate. In this blog we will cover what the Net Savings Rate is, and why you should care about it.

Current Coverage Metrics

In typical discussions around optimizing your commitments to a cloud provider, the key metric that gets discussed is the Coverage Amount. In other words - how much of your infrastructure is covered by some sort of commitment (e.g. reserved instances, savings plans, etc). For example, the FinOps Foundationuses Coverage Amount as an indicator of an organization’s overall FinOps maturity.

This is an important metric and one that companies should consider not only across their entire cloud usage, but also on a per workload basis, which is why we created our Segmentation Engine. For example, for a production workload that is relatively steady state - you may want a higher coverage amount, say 80%+, as you know that the resources powering this workload are regularly used so you can be comfortable making a longer term commitment to get more savings. However for a development environment, where resources are coming and going on a more ephemeral basis as your engineers prototype things, it may not make sense to have a large coverage amount as you may not want to risk being overcommitted for resources that are not heavily utilized over the term length of the commitment. This is why we allow you to create coverage targets on a per segment basis, and encourage segmentation around logical business units.

What we’ve seen and heard from customers is that the Coverage Amount doesn’t tell the complete story. Hypothetically, you could have coverage of 100% of your resources - but the key, missing metric is the quality of that coverage - how much discount are you getting for that coverage?

Top Down Example

Let’s take a hypothetical example of a company that spends $1M/yr on a cloud provider. Imagine two scenarios, one where they have 100% coverage at a 20% discount rate, and another where they have only 80% coverage, but at a 50% discount rate. Which is the better deal for them?

  • Scenario 1: $1M * 100% coverage * 20% discount rate = $200k savings = 20% Net Savings Rate
  • Scenario 2: $1M * 80% coverage * 50% discount rate = $400k savings = 40% Net Savings Rate - 2x improvement!

Clearly coverage quality matters! By optimizing your cloud spend with the Archera platform, you can realize further savings that you didn't realize was possible, especially in a situation where you think you may be highly optimized with a majority of your infrastructure covered.

Bottoms Up Example

Let’s take a look at another example with four basic m5.large EC2 servers from AWS running in US-East-1. Let’s say one of these is running on-demand, another covered with a 3-year Reserved Instance, the other with an Archera GRI, and the other is covered by a 1 year Compute Savings Plan. What is our Net Savings Rate?

In Action

To get started measuring your Net Savings Rate, log into Archera and pull up the Segment Planner. Next, click the “KPIS” button underhead the graph.

Next, click the checkbox under the “Visible” column next to “Net Savings Rate” to have the Net Savings Rate be displayed on the chart above:

You will see the Net Savings Rate, expressed as a percentage, overlaid on the chart. You can hover over the line to see finder detail:

Wrap Up

Now that you’ve seen what a difference the quality of your coverage can make, feel free to explore this metric through starting a free trial with Archera. Our platform will automatically analyze your current and historical spend and show you detailed plans about how we can help automate and simplify your cloud resource management.

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