Part of the role of any managed service provider managing cloud services is to guide their customers through the process of creating and evaluating cloud cost models. This is important whether migrating to the cloud, re-evaluating an existing cloud environment, or simply understanding a monthly cloud bill. Many customers may be more familiar with on-prem cost models, so relating to that mindset is crucial. Here are a few important things to keep in mind when educating your customers about cloud costs.

1. Explain CapEx vs. OpEx

One of the biggest shifts in mentality that must be made when evaluating cloud cost models is the shift from predominantly Capital Expenditures with on-prem workloads as compared to predominantly Operational Expenditures with cloud workloads.

As one of our customers explained the mindset problem:

“It’s been a challenge educating our team on the cloud model. They’re learning that there’s a direct monetary impact for every hour that an idle instance is running.”

Another contact added: “The world of physical servers was all CapEx driven, requiring big up-front costs, and ending in systems running full time. Now the model is OpEx, and getting our people to see the benefits of the new cost-per-hour model has been challenging but rewarding.”

Deploying a project in a private cloud involves lots of up-front purchases and ongoing maintenance, including servers, power, hardware, buildings, and more. On top of the actual purchase cost, you must account for amortization, depreciation, and the opportunity cost of those purchases.

Cloud workloads often work on a pay-as-you-go model, where you pay only for what services and features you use and how long you use them. This provides organizations with almost no Capital Expenditures for these resources, but results in a dramatic increase in Operational Expenditures. Neither is necessarily a bad thing, but your job as an MSP is to clearly articulate this shift so the customer can understand why the ongoing costs appear so much higher. And, of course, you’ll have to incorporate your own value into the equation.

2. Make Sure Your Clients Understand Their Cloud Bill Breakdown

For on-prem services, the details of the cost model don’t usually require detail about what software or service is actually running on the physical machine. A database server and a web server may have different specs, but everything becomes normalized to the physical hardware that must be purchased as a one-time fee. This provides a certain level of simplicity in your calculations, but still must account for all the additional physical factors like power, air conditioning, redundancy, cabling, racks, and maintenance.

Cloud services not only charge based on time used, but also have very different costs for each service. A database server and a web server are going to have very different cost structures, and will show up on your monthly bill as separate items. This often makes the bill look much more complex, but the flip side of that is that you have many opportunities for optimization and cost allocation.

3. Be the Authority on IT Costs

Creating cloud cost models for your customers can require a big mental shift from other cost models, but it’s an important step for current and future IT projects. Understanding what the options are, what the costs are, and what your usage will be, are all factors. Make sure to convey all of these aspects to the stakeholders of your client in a clear way to avoid the surprise bill at the end of each month.

Ultimately, the market for cloud managed services is growing, which is good for managed service providers. As customers migrate to the cloud, they will need cost optimization expertise, which is a great angle for MSPs to get a foot in the door.