Cloud migration can save money — but only if you calculate costs correctly before moving. Poor cost estimation leads to surprise bills, over‑provisioning, or severely under‑sized infrastructure.

Here is a simple framework used by cloud architects to estimate cloud costs accurately before migration.

1. Understand Your Current Infrastructure

Start with a complete inventory of your on‑prem resources:

Collect:

• Servers (CPU, RAM, storage)
• Databases (size, IOPS, growth rate)
• Applications and dependencies
• Network usage (ingress/egress)
• Security tools
• Backup & DR systems

Tools that help:

• AWS Application Discovery Service
• Azure Migrate
• Google Cloud Migrate
• Datadog / New Relic
• VMware vCenter export

These tools show actual utilization, not just hardware size.

2. Map On‑Prem Resources to Cloud Services

Match each component with its cloud equivalent:

On‑Prem ComponentCloud EquivalentPhysical/VM ServerEC2, Azure VM, GCEDatabaseRDS, Aurora, Cloud SQLFile ServerS3, Azure Blob, GCSLoad BalancerELB / ALBFirewallSecurity Groups / WAFBackupAWS Backup / Azure Backup

This mapping forms the base of your cost model.

3. Identify Usage Patterns (Right‑Sizing)

Most on‑prem servers run < 30% utilization.

Cloud lets you size based on actual usage, not hardware capacity.

Example:

On‑prem server: 16 vCPU, 64 GB RAM

Actual usage: 4 vCPU, 14 GB RAM

Cloud needs: 4 vCPU, 16 GB RAM

Right‑sizing reduces cost by 40–70%.

4. Estimate Compute Costs

Cloud compute pricing depends on:

• Instance type
• CPU/RAM
• Region
• Hours per month
• Pricing model:
• On‑Demand
• Reserved Instances / Savings Plans
• Spot Instances

Tip:

Use a mix — RI for steady workloads, on‑demand for unpredictable, spot for dev/test.

5. Estimate Storage Costs

Break storage into components:

• Object storage (S3, Blob, GCS)
• Block storage (EBS)
• Database storage
• Backup storage
• Snapshots

Also check:

Data retrieval cost (often ignored)

Lifecycle policies (IA, Glacier tiers)

Storage is cheap, but data transfer + retrieval can be expensive.

6. Estimate Data Transfer Costs

Most hidden cloud costs come from network egress.

Typical charges:

• Data from cloud → Internet
• Between regions
• Between AZs (small but adds up)

Tip: If your app is chatty across components, put them in same VPC and same AZ.

7. Estimate Licensing Costs

Licensing can drastically change cost:

• Windows Server
• SQL Server
• Oracle
• Red Hat / SUSE
• Third‑party firewall licenses

Check if:

• You can use Bring‑Your‑Own‑License (BYOL)
• Cloud offers license‑included options

8. Add Operational & Hidden Costs

Many forget to include these:

✔ Monitoring (CloudWatch, Azure Monitor)

✔ Logging (CloudTrail, SIEM tools)

✔ Support plans (AWS Business/Enterprise Support)

✔ Load balancers

✔ NAT gateways

✔ Public IP costs

✔ Backup & DR costs

These can add 10–35% additional cost.

9. Use Cloud Cost Calculators

Every cloud provider offers official calculators:

🔹 AWS Pricing Calculator

🔹 Azure Pricing Calculator

🔹 Google Cloud Pricing Calculator

These allow:

• Drag‑and‑drop architecture design
• Real‑time cost estimates
• Region comparison
• RI/Savings Plans modeling

10. Add a 10–20% Buffer

Cloud usage fluctuates due to:

• Traffic spikes
• Data growth
• Seasonal events
• Scaling events

Adding a buffer protects against surprise bills.

Final Output: Your Cloud Cost Estimate Should Include

• Monthly compute cost
• Storage & backup cost
• Database cost
• Network transfer charges
• Monitoring/logging
• Support plans
• Licensing
• Hidden costs
• Migration cost (one‑time)
• 10–20% buffe