Blended vs Unblended Cost

Blended and unblended cost are different ways of presenting the same AWS charges. Unblended cost shows each line of usage at the rate actually applied to it, such as an on-demand rate, a reserved instance rate or a savings plan rate. Blended cost, by contrast, calculates an average rate for certain types of usage across all accounts in a consolidated billing family and applies that average to every account. Neither changes the total amount the organization pays, but they can change how costs appear for individual accounts and teams.

AWS also offers amortized cost, which spreads upfront commitment payments over the commitment term, and net versions of these measures that include negotiated discounts. Choosing the right measure for each purpose is a common source of confusion. For IT financial management, understanding these cost measures is essential for reconciling invoices, allocating costs fairly to teams and avoiding disputes about whose numbers are correct.

Definition of Blended vs Unblended Cost

Unblended cost is the cost of each usage line at the rate actually charged when the usage occurred. It is the measure closest to how AWS calculates the invoice, and the total unblended cost for a period matches the bill, before taxes and certain adjustments.

Blended cost is the cost of usage calculated with blended rates, which are averages of the rates paid for the same usage type across the accounts in an AWS Organization. It was designed to share the benefit of reserved instances and volume pricing across linked accounts.

How Blended Rates Work

Suppose two accounts in the same organization each run one instance of the same type. One instance is covered by a reserved instance at a discounted rate, and the other runs at the on-demand rate. Under unblended cost, one account shows the discounted rate and the other the on-demand rate.

Under blended cost, both accounts show the average of the two rates. The total is the same, but each account's cost reflects the organization's average rather than which account happened to receive the discount.

Blended rates apply only to certain usage types and do not reflect savings plans in the same way, which is one reason many organizations rely more on amortized cost for allocation.

Amortized and Net Costs

Amortized cost spreads upfront and recurring commitment fees across the usage the commitments cover, over the commitment term. It shows the effective cost of usage each month, without spikes when commitments are purchased.

Net unblended and net amortized costs include discounts such as those from private pricing agreements or an enterprise discount program, giving the closest view of what the organization actually pays.

The AWS Cost and Usage Report includes columns for these measures, and the FOCUS specification defines similar measures, such as billed cost and effective cost, across providers.

Importance of Cost Measures in IT Financial Management

Different stakeholders need different views of the same costs. Using the wrong measure can make teams appear more or less expensive than they are, or make reports impossible to reconcile with invoices.

Agreeing which measure to use for each purpose prevents confusion. Without such an agreement, finance and engineering can spend hours reconciling figures that differ only because they were calculated differently.

It also helps teams trust the numbers they see, since everyone understands how they were calculated.

Reconciliation

Finance needs to reconcile cost reports with invoices. Unblended cost, which follows billing rates, is usually the right measure for this purpose, since its total matches what AWS charges in each period.

Upfront commitment payments appear in unblended cost when they are billed, which can create large spikes. These are real cash costs, but they do not reflect the cost of usage in that month.

For accounting purposes, upfront payments are usually treated as prepaid expenses and amortized over the commitment term.

Allocation and Showback

For showing teams the cost of their usage, amortized cost is usually the most useful measure. It spreads commitment costs evenly over the term and applies them to the usage they cover, so each team sees an effective rate.

Unblended cost can be unfair for allocation, since teams whose usage happens to be covered by commitments look cheaper than teams with identical usage that is not covered.

Blended cost addresses part of this problem by averaging rates, but amortized cost combined with clear allocation rules is now the more common approach for cloud cost allocation.