More than half of organizations that use the Amazon Web Services Inc. cloud don’t take advantage of savings plans, collectively wasting up to $20 billion annually in cloud spending, according to a new study by ProsperOps Inc.

The company, which sells software and services that automate the cloud financial accountability discipline called FinOps, said fewer than half of the hundreds of anonymized AWS accounts it analyzed used commitment-based discounts to reduce their cloud costs. Given that half of a typical organization’s spending on cloud services goes to infrastructure, that adds up to billions of dollars in expenses that could have been avoided.

Cloud overspending is a well-documented phenomenon. A study commissioned by HashiCorp Inc. last year found that 94% of respondents acknowledged wasting some money on the cloud, with the top reasons being overprovisioning or underutilization of resources.

ProsperOps used “effective savings rate,” or the ratio of cloud savings generated divided by the amount an organization would pay a cloud provider without discounts, to measure spending effectiveness. The median ESR on cloud computing services across all organizations was 0%, meaning more than half don’t take advantage of any discounts at all.

In the 75^th percentile of most effective spenders, ESR was 23%, rising to 46% for those in the 98^th percentile.

Many discount options

AWS has various discount criteria, including the operating system used and the region where the workload is processed. The most widely used markdown is the Savings Plan, which offers customers lower prices in exchange for committing to consistent usage over a specified period. The report said 38% of organizations use Savings Plans, which have the advantage of being easy to implement but don’t scale down if actual usage is below expectations.

Only 18% of organizations use AWS Standard Reserved Instances, which have existed since 2009. Standard Reserved Instances are more restrictive than Savings Plans but have the advantage of being able to be bought and sold on the Reserved Instance Marketplace.

The least-used discount plan – Convertible Reserved Instances — is also the most flexible. It’s the only discount instrument that allows for changing point-in-time commitments, but just 14% of the organizations surveyed use it. “We think CRIs paired with Savings Plans is a robust strategy that generates top-tier savings performance and reduces commitment risk,” the study says.

Companies that spend less than $1 million annually on cloud infrastructure had far lower ESRs than companies that spend over $5 million. The 75^th percentile of low-usage organizations averaged a monthly ESR of 15% compared to 40% for those in the high-usage category, probably because big spenders pay closer attention to costs. The report offers advice for how companies can improve their savings rates. Not surprisingly, it recommends using automated solutions.

AWS Enterprise Finance Strategist Chris Hennesey said matching the workload to the instance is the best starting point for optimizing cloud spending. “Using AWS Compute Optimizer to help customers right-size their Amazon EC2 instance types is one of the largest areas of opportunity,” he said in an e-mailed statement. “Savings Plans and Reserved Instances coverage are strategies that we also actively talk to customers about; however, we find that customers are most successful with these efforts together with having right-sized their environment—the process of matching instance types and sizes to workload performance and capacity requirements.”

Customers appear to be wising up to cost-saving tactics. A recent report by Everest Group, a division of Everest Global Inc. report said Savings Plan and Reserved Instance adoption is expected to increase by 80% in the next three years.

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