The savings metric every FinOps team needs to know: effective savings rate
Rate optimization is a cloud saving approach that involves paying the lowest rate possible for a given unit (hour, GB, etc.) of cloud usage via strategic use of commitment-based discounts, such as AWS Savings Plans/Reserved Instances and Google Cloud Platform Committed Use Discounts. To measure return on investment (ROI) from these discounts, organizations must understand and benchmark their Effective Savings Rate (ESR). ESR is the "North Star" rate optimization metric which incorporates utilization, coverage, and discount rates into a single, comprehensible figure that can be compared against industry peers.
According to the 2024 Effective Savings Rate Benchmarks and Insights Report by ProsperOps, the current Effective Savings Rate (ESR) results are generally poor. The median ESR for AWS compute services (Lambda, EC2, and Fargate) is 0 percent, indicating that many organizations are not leveraging commitment-based discounts and are paying on-demand rates. Even at the 75th percentile, the ESR is only 23 percent, suggesting significant room for improvement. These insights indicate that many organizations are not fully leveraging rate optimization as an approach to optimize cloud spend.