By Merve Soner, SaaS Business Lead at AWS
Cost of Goods Sold (COGS) is a key metric for software companies, especially for the ones with software-as-a-service (SaaS) offerings, helping them to calculate gross margin and demonstrate business performance.
COGS is basically the cost of delivering your solution to customers. Understanding COGS per customer is key for SaaS providers to shape their tiering and pricing strategies.
Many SaaS companies are leveraging Kubernetes for automating deployment, scaling, and management of their containerized applications. This gives them great benefits in agility and time to market. However, it also makes it difficult to understand the detailed costs of operating containerized services that are required for accurate COGS reporting.
Organizations often find themselves struggling with complex, manual work in spreadsheets to analyze Kubernetes costs by business units, products, or features.
CloudZero, an AWS Advanced Technology Partner, helps engineering leaders innovate within the constraints of cost by delivering relevant cloud cost data directly to engineers.
With the support of AWS SaaS Factory, CloudZero launched a new capability for companies with investments in containerized workloads orchestrated with Kubernetes in the Amazon Web Services (AWS) environment.
With this new capability, software providers can understand the exact container costs breakdown and how they roll up to products, features, and teams along with their other AWS services. This COGS insight can lead to better strategic decisions and business success.
Working with the AWS SaaS Factory team, CloudZero navigated technical and business decisions for launch and beyond.
In this post, Tim Buntel, Chief Product Officer at CloudZero, answered our questions and shared some insights about their recent launch.
Q&A with CloudZero
AWS SaaS Factory: Can you tell us about your background and personal experience with cloud computing?
Tim Buntel: I’ve been a product leader for 20 years, specializing in developer tools and platforms. That means that my customers—innovative engineering teams—have been involved in cloud computing since its inception. The combination of cloud, DevOps, and containers has revolutionized how companies deliver value. I’ve been supporting their digital transformations every step of the way.
SaaS Factory: CloudZero is not new to the SaaS world. What products and solutions has CloudZero built on AWS?
Tim: CloudZero was founded in 2016 and offers a cost platform for cloud-savvy engineering teams. Our solution has been SaaS on AWS since day one. We’re also unusual in that we’re “serverless-first,” leveraging AWS Lambda and other services 100 percent in our production systems.
SaaS Factory: How does the new Kubernetes cost solution work?
Tim: CloudZero brings real-time container utilization data, AWS cost data, and information about a customer’s business context all together in the CloudZero platform. It applies our proprietary algorithms to accurately and automatically allocate costs within their Kubernetes clusters.
This lets customers understand not just the total cost of their Kubernetes environment at a high level (Amazon EKS and Amazon EC2 costs, for example), but at an individual workload level. This includes how much it costs to operate a specific pod or namespace. It’s all done automatically and doesn’t require users to configure and maintain complex allocation rules.
SaaS Factory: What are some of the key customer benefits?
Tim: For our customer Drift, a conversational marketing platform, it was difficult to attribute their AWS costs to specific products or features in order to make better business decisions based on COGS. Using CloudZero, the Drift engineering team gained deep visibility into the cost of specific features and how those costs are changing over time.
For containerized workloads being run on Kubernetes, CloudZero can show their costs down to the hour from the pod level, through namespaces to clusters. These costs alongside non-Kubernetes costs—like shared database and storage, networking, or security—provide a complete picture of how containerized and non-containerized infrastructure combines in the total cost to build and run products.
In Drift’s case, this helped reduce the cost to run one of their most popular and expensive product features by 80 percent.
SaaS Factory: That is really impressive! Can you walk us through the architecture? What AWS services are key?
Tim: The CloudZero platform is built atop a machine learning-optimized data architecture comprised of four main components—a company’s cloud cost data, events and KPIs that are meaningful to their business, the context of the business, and the services and components that comprise their products.
CloudZero ingests relevant data from a number of AWS and non-AWS sources; the AWS Cost and Usage Report, naturally, but also AWS CloudTrail to identify how services and resources are changing within a customer’s AWS accounts.
It also uses AWS CloudWatch to analyze system utilization, and a host of other CI/CD and DevOps tools via the CloudZero Event API. With this information, we can identify unexpected costs or cost anomalies, map costs to specific products and features or the teams responsible for operating them, and provide strategic insight into COGS.
Figure 1 – AWS CloudWatch Container Insights provide an additional data source for understanding COGS.
While CloudZero has been able to provide information about a customer’s container and Kubernetes costs at a high level, customers lacked insight into the runtime attributes of the containerized workloads.
To fill this gap, we decided to leverage AWS CloudWatch Container Insights—a service that collects, aggregates, and summarizes metrics and logs from containerized applications and microservices. It discovers all of the running containers in a cluster and collects performance and operational data, which can be viewed on dashboards, or used with CloudWatch alarms.
CloudZero ingests a small amount of Container Insights data, which is generated by the CloudWatch Agent, to power the container cost allocation feature.
SaaS Factory: What support did AWS SaaS Factory provide your team?
Tim: We’ve been working closely with the SaaS Factory team both on the business and technical side of this project. Our CTO and engineering team worked with SaaS Factory to discover the AWS services we’d need to use.
AWS SaaS Factory enabled us to work directly with the CloudWatch Container Insights team once we identified that service as a key component of our solution. We also worked with SaaS Factory to explore various SaaS pricing and packaging strategies that could help us improve our growth.
SaaS Factory: What would you tell others planning to build a SaaS solution on AWS?
Tim: Don’t do it alone! Building a successful SaaS business (or transitioning from a traditional software model to SaaS) can be complex, but there’s a wealth of experience and knowledge out there that you can draw on.
AWS SaaS Factory and other AWS Partner Network (APN) programs have played a big role in the rapid growth of CloudZero—and they can do the same for you.
Don’t forget about the value of understanding the cost of building and running your products. When you understand your COGS, you can make decisions about which tech debt to tackle, which feature to drop or enhance, or which pricing strategy to adopt.
Learn More About AWS SaaS Factory
AWS SaaS Factory provides a comprehensive set of business and technical best practices, and engagement opportunities that empower and support independent software vendors (ISVs) building SaaS offerings on AWS.
AWS Technology Partners are encouraged to reach out to their account representative to inquire about engagement models and to work with the AWS SaaS Factory team.
Additional technical and business best practices can be accessed via the AWS SaaS Factory website.
CloudZero – AWS Partner Spotlight
CloudZero is an AWS Advanced Technology Partner offering fully-automated cost anomaly tracking and alerts, AI-driven cost mapping, streamlined and simplified graphs/charts, and automatically generated resolutions for issues that are actionable and straightforward.
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