[Answered] What is the difference between AWS amortized cost vs unblended cost?

Answer

When you're analyzing your AWS costs and usage, AWS provides different cost perspectives through billing tools such as Cost Explorer or the AWS Billing Console. Two important pricing models that often create confusion are Amortized Cost and Unblended Cost. Here is a breakdown of what each term means and how they differ:

Unblended Cost:

Unblended cost represents the actual charge on your account for a service or resource for a particular billing period. It doesn't consider any form of cost distribution for reserved instances (RIs) or savings plans over time. This makes it useful in situations where you want to understand the direct charges incurred within a specific billing period. However, unblended costs are billed immediately in the period the usage occurs, which can sometimes create spikes in certain months when upfront charges for Reserved Instances or Savings Plans are applied.

For example, if you purchase a 3-year Reserved Instance (RI) and pay for it upfront in month 1:

The unblended cost for month 1 would include the entire upfront payment.
For the following months, the unblended cost does not reflect any amortization of that RI payment, even though you continue using the capacity.

Amortized Cost:

Amortized cost spreads upfront charges over the period during which the benefits are realized. This gives you a more consistent view of costs by distributing large upfront payments (like those for Reserved Instances or Savings Plans) over the lifetime of the term (monthly), rather than recording them all at once.

If you're analyzing long-term AWS spending trends, the amortized cost model provides a more accurate allocation of costs for resources like Reserved Instances and Savings Plans. This is particularly beneficial when you want to calculate true cost per month or accurately measure the long-term savings that originate from upfront commitments.

For the same 3-year Reserved Instance (RI):

Instead of recording the entire cost in month 1, the amortized cost divides the RI cost over the entire 36 months.
Each monthly billing cycle will show a fraction of the upfront payment as part of the ongoing cost.

Key Differences:

| Aspect | Unblended Cost | Amortized Cost | |-----------------------------------|--------------------|--------------------| | Definition | Direct charges during the period (no cost spreading). | Spreads upfront costs (e.g., RIs) over time. | | Use Case | Analyzing actual costs billed within a month. | Understanding long-term cost trends and savings. | | Upfront Reserved Instance Cost | Entire cost reflected in the first month. | Spread evenly across the term (e.g., 1 year or 3 years). | | Ideal for Cost Reporting | Short-term cost analysis or calculating actual cash outflows. | Long-term cost analysis and evaluating true monthly spend. |

Example Use Case:

If your organization purchases Amazon EC2 Reserved Instances, using unblended costs will show a high cost in the month when that RI is purchased. However, if you're using amortized costs, the incurred cost will be smoothed out across the entire period, helping you understand your monthly expenses more accurately and avoiding spikes.

It's important to choose the appropriate model based on your cost analysis goals. Unblended costs are better for understanding the "cash outflow" at a given point, while amortized costs are preferable for assessing longer-term investment in AWS savings programs.