How to Calculate Cloud Migration Costs and Avoid Overpaying for Services After Migration

Cloud migration costs are one of the most underestimated line items in enterprise IT planning. According to Flexera’s State of the Cloud Report, organizations estimate they waste 32% of their cloud spend and much of that waste starts before a single workload ever moves.

Before committing budget to a migration, engineering leaders need three numbers: what you’re currently paying for on-premise infrastructure, what the migration itself will cost, and what the cloud will cost you on an ongoing basis. Getting any one of these wrong can turn a cost-reduction project into a budget overrun.

This guide walks you through each phase with a practical framework built for CTOs, CIOs, and infrastructure leads who need accurate estimates, not ballpark guesses. If you’d rather get a tailored assessment from engineers who’ve done this across AWS, Azure, and GCP, Gart’s Cloud Migration Services can help you build a solid business case from day one.

Key Questions to Consider Before Cloud Migration

Here are some questions businesses should ask themselves before migrating to the cloud:

Is downtime critical for the company? There is no need for the cloud if the business can wait a day or two for server and other component recovery/replacement without major consequences.

Has the equipment been purchased? How long ago? Cloud migration can be delayed if the servers are less than three years old and the company does not plan to grow rapidly.

Is a cloud solution necessary? A cloud solution is necessary if the project is new and the equipment is not yet available. Or if it is already working, the infrastructure is more than three years old, and one to four hours of downtime is critical for the company.

Other questions to consider:

• What are the business goals for migrating to the cloud?
• What are the specific applications and workloads that will be migrated?
• What are the security and compliance requirements for the cloud environment?
• What are the costs and benefits of migrating to the cloud?
• What is the migration timeline and plan?
• Who will be responsible for managing the cloud environment after migration?

Local Infrastructure Costs

To determine the potential financial benefits of migrating to the cloud, it is necessary to calculate the current costs of the local infrastructure as accurately as possible and obtain data on its performance. Only then will it be possible to determine the correct configuration of the cloud infrastructure and compare the current local costs with the planned costs in the cloud.

Costs are divided into direct and indirect.

Direct costs:

• Capital expenditures:
  • Purchase of servers, storage systems, network equipment, etc.
  • Software licenses.
  • Data center construction or rental costs.
    
• Operational expenditures:
  • Electricity costs.
  • Cooling costs.
  • Maintenance and repair costs.
  • IT staff salaries.

To calculate the total cost of local infrastructure, it is necessary to consider all of these factors. Once the total cost is known, it can be compared to the cost of cloud computing to determine whether migration is financially viable.

Direct Costs

Direct costs can be broken down into five main categories:

1. IT Equipment Acquisition: This includes the purchase of servers, storage systems, network equipment, and other IT hardware.
2. Data Center Colocation or Server Room Maintenance: This includes the cost of renting space in a data center or maintaining your own server room.
3. Software Licensing and Renewals: This includes the cost of purchasing and renewing licenses for operating systems, applications, and other software.
4. Hardware Setup and Maintenance: This includes the cost of installing, configuring, and maintaining IT hardware.
5. Software Updates and Equipment Service Contracts: This includes the cost of purchasing software updates and service contracts for IT hardware.
6. IT Personnel: This includes the cost of salaries, taxes, health insurance, vacation, bonuses, and office equipment for IT staff.

It is also important to consider the costs of HR, procurement, and accounting departments. These departments also spend some of their resources on ensuring the functionality of the corporate IT infrastructure.

Indirect Costs

Indirect costs are not as obvious as direct costs and can be more difficult to calculate. The main part of indirect costs is related to downtime, customer dissatisfaction, damage to business reputation, and lost profits. An example of indirect costs would be a corporate website crashing or freezing on Black Friday.

One way to calculate indirect costs is to review incident and degradation reports to determine how often and for how long the equipment fails. To calculate the amount of damage, it is necessary to multiply the downtime by the average hourly rate of employees.

Indirect costs:

• Downtime costs:
  • Lost productivity due to system outages.
  • Revenue losses due to unavailability of applications or services.
    
• Security risks:
  • Data breaches.
  • Compliance violations.
    
• Business agility:
  • Inability to quickly scale up or down resources to meet changing business needs.

Cloud Migration Costs

Several key factors influence the cost of cloud migration. These include:

• Defining migration goals: It is important to clearly define the goals of the migration before starting the process. This will help to determine the scope of the migration and the resources required.
  
• Identifying key pain points: Once the goals are defined, it is important to identify the key pain points that the migration is intended to address. This will help to prioritize the migration tasks and focus on the areas that will have the biggest impact.
  
• Data volume to be transferred: The amount of data that needs to be migrated will have a significant impact on the cost of the migration. It is important to accurately estimate the amount of data to be transferred and to choose a migration method that is appropriate for the volume of data.
  
• Cloud service model: The cost of cloud migration will also vary depending on the cloud service model chosen. Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS) all have different pricing models.
  
• Provider selection: The cost of cloud migration will also vary depending on the cloud provider chosen. It is important to compare the pricing and features of different cloud providers before making a decision.

It is also necessary to assess the readiness of local applications for cloud operation. This is necessary to understand what can be immediately transferred to the cloud, what needs to be modernized, and what is better left in the local environment. Costs will need to be calculated for each scenario.

The migration process itself is the most labor-intensive and costly part of the migration. The costs of this stage consist of the following:

• Initial costs for deploying new servers and cloud services. At the same time, the organization will incur additional time and financial costs for local infrastructure and data synchronization.
• Modification of applications and code, creation of new infrastructure according to business needs. A significant part of the costs is for labor.
• Solving potential problems with data privacy and security during the move.

Overall, it is quite difficult to calculate the exact cost of migration. The cost of migration depends heavily on the skills of the team. The more qualified it is, the lower the cost of the move. A cloud provider or partner with the necessary competencies can help reduce the time and cost of migration.

When Do Cloud Migration Costs Actually Make Sense?

Not every infrastructure needs to move to the cloud, and the business case should drive the decision not the trend. Before modeling costs, it’s worth asking a few honest questions:

• How old is your hardware? If servers are under three years old and your workloads are stable, migration may not pencil out until the next refresh cycle.
• What does downtime cost you? If your business can absorb a day of downtime for maintenance or recovery, on-premise may still be adequate. If one to four hours of unavailability means significant revenue loss, the reliability and redundancy of cloud infrastructure start to justify the cost.
• Are you planning to scale? Cloud economics favor variable, growing workloads. A static, predictable workload running on paid-off hardware rarely gets cheaper in the cloud.
• What are your compliance requirements? Healthcare, finance, and government workloads have specific data residency and audit requirements that affect which cloud architecture is viable and at what cost.

If the answer to most of the above points toward the cloud, the next step is accurate cost modeling across three distinct phases.

Phase 1: What Your On-Premise Infrastructure Actually Costs

Most organizations underestimate their true on-premise costs because they only track the obvious line items servers and licenses. A rigorous cloud migration cost comparison requires capturing the full picture, including the hidden spend that doesn’t appear on a single invoice.

Direct Costs

Direct costs are the capital and operational expenditures that appear in budget reports:

• Hardware acquisition: Purchase price of servers, storage arrays, networking equipment, and any planned refresh costs amortized over the asset life.
• Data center or colocation fees: Rack space, power, cooling, and physical security whether owned or rented.
• Software licenses: OS licenses, database licenses (Oracle, SQL Server), middleware, and monitoring tools. These are often the largest hidden cost when teams discover cloud-native alternatives.
• IT personnel: Fully-loaded cost of infrastructure engineers, including salary, benefits, employer taxes, and tooling. Don’t forget the proportion of HR, procurement, and finance time allocated to keeping infrastructure running.
• Maintenance and support contracts: Vendor support agreements, hardware warranty extensions, and break-fix contracts.

Indirect Costs The Numbers Most Teams Miss

Indirect costs require more effort to quantify but often reveal the strongest financial argument for migration:

• Downtime costs: Review your incident and degradation logs for the past 12-24 months. Multiply total downtime hours by the average hourly revenue impact of your business. For e-commerce or SaaS companies, even 30 minutes of downtime can represent tens of thousands of dollars.
• Security and compliance risk: The cost of a data breach or a failed compliance audit is difficult to predict but straightforward to research. The IBM Cost of a Data Breach Report consistently places average breach costs above $4 million a number that reframes the security investment discussion entirely.
• Opportunity cost: Infrastructure teams spending cycles on hardware maintenance are not building product features or improving system reliability. Quantifying the engineering hours “consumed by toil” converts an operational cost into a strategic one.

Practical tip: Build a simple spreadsheet that captures annualized direct costs and a 12-month average of indirect costs. This becomes your baseline for the TCO (Total Cost of Ownership) comparison and the number you’ll hold the cloud against.

Phase 2: What the Migration Itself Will Cost

Cloud migration costs during the transition period are often where budgets surprise organizations the most. The migration phase is inherently labor-intensive and the scope expands as you discover technical debt, licensing complications, and workloads that weren’t designed for cloud environments.

Assessment and Discovery

Before you can scope the migration, you need a complete inventory of what you’re moving. A thorough IT infrastructure audit typically reveals 20-30% more services and dependencies than teams expect. Discovery tools like AWS Migration Evaluator, Azure Migrate, and third-party platforms such as Cloudamize help automate this, but engineering time is still required to interpret results and make architecture decisions.

Migration Approach and Its Cost Implications

The migration strategy you choose has the single biggest impact on both cost and timeline. The six common approaches often called the “6 Rs” each carry different cost profiles:

Most enterprise migrations combine multiple strategies. A typical engagement might rehost 60% of workloads for speed, replatform databases to managed services, and refactor a handful of business-critical applications. The ratio between these strategies defines your total migration budget more than almost any other factor.

Key Migration Cost Components

Beyond the migration strategy, budget for these specific line items:

• Dual-running costs: During migration, you’ll pay for both your on-premise infrastructure and your new cloud environment simultaneously. Depending on migration duration (typically 3-12 months for mid-size organizations), this can be a significant budget item.
• Data transfer fees: Moving large data volumes to the cloud involves egress fees on the origin side and ingress processing on the cloud side. At scale terabytes to petabytes this becomes a material cost. Some providers offer offline transfer devices (AWS Snowball, Azure Data Box) for large datasets that are cheaper than network transfer.
• Application refactoring: Code changes, testing, CI/CD pipeline updates, and security hardening are typically billed as engineering hours. This is the hardest cost to predict without a detailed discovery phase.
• Third-party consulting fees: If you’re using an external migration partner, expect to pay for architecture review, migration execution, and knowledge transfer. Qualified partners reduce risk and typically shorten timelines enough to offset their cost but this needs to be in the budget from the start.
• Staff training: Cloud operations require different skills than on-premise management. Budget for formal training (AWS/Azure/GCP certification programs), hands-on workshops, and the ramp-up productivity dip as teams learn new tools.

Rule of thumb: For a mid-size organization moving 50-200 workloads, migration costs typically range from 1— to 3 the first year of ongoing cloud operating costs. The larger multiplier applies to complex refactoring projects; the smaller applies to lift-and-shift at scale.

Phase 3: Estimating Ongoing Cloud Infrastructure Costs

Post-migration, your cost structure shifts from CapEx (hardware purchase, depreciation) to OpEx (pay-as-you-go compute, storage, networking). This is where cloud cost optimization becomes a permanent operational discipline rather than a one-time exercise.

Primary Cost Drivers in the Cloud

Understand these categories before running any cloud provider calculator:

• Compute: VM instances or containers are usually the largest cost category. Instance pricing varies by CPU/memory configuration, region, and commitment model (on-demand vs. reserved vs. spot).
• Storage: Object storage (S3, Azure Blob), block storage (EBS, Azure Managed Disks), and file storage all carry different price points. Storage costs scale with volume, retrieval frequency, and redundancy requirements.
• Networking and data transfer: Intra-region traffic is typically free or very cheap. Cross-region and egress-to-internet traffic can add up quickly, particularly for distributed applications with microservices across regions.
• Managed services: Replacing self-managed databases, queues, and caches with managed equivalents (RDS, SQS, ElastiCache) adds cost but reduces engineering overhead. The net effect is often positive, but it needs to be modeled.
• Support and monitoring: Enterprise support contracts with AWS, Azure, or GCP can run from 3% to 10% of monthly spend. Cloud-native monitoring, logging, and observability tools (CloudWatch, Azure Monitor, Datadog) also add to the monthly bill.

Choosing the Right Cloud Pricing Model

Cloud providers offer multiple commitment models that dramatically affect ongoing costs:

• On-demand: Pay by the hour or second with no commitment. Maximum flexibility, highest per-unit cost. Appropriate for development environments and highly variable workloads.
• Reserved instances (1 or 3-year commitments): Discounts of 40-72% vs. on-demand for predictable, stable workloads. Requires upfront commitment to instance type and region.
• Spot / preemptible instances: Access spare cloud capacity at 60-90% discounts. Instances can be reclaimed with minimal notice appropriate for batch processing, data pipelines, and fault-tolerant workloads. See how one Gart client cut compute costs by 81% using Azure Spot VMs.
• Savings Plans: AWS and Azure offer flexible commitment discounts that apply across instance families and sizes more flexible than reserved instances with comparable savings.

The FinOps Foundation recommends a structured approach to cloud financial management: start with visibility (who’s spending what), move to optimization (rightsize and commit), and establish governance (prevent future waste). This framework is increasingly adopted by engineering organizations managing multi-cloud environments.

Cloud Provider Cost Comparison: AWS vs. Azure vs. GCP

Choosing the right cloud provider is a major cost lever. Pricing is competitive across the three hyperscalers, but differences in managed services, egress fees, licensing incentives, and enterprise agreements can result in 15-30% variance in total spend for equivalent workloads. Our detailed AWS vs. Azure vs. GCP comparison covers the technical and commercial trade-offs in depth.

Key considerations from a cost perspective:

• Microsoft Azure offers significant discounts for organizations with existing Microsoft EA (Enterprise Agreement) licenses, particularly for Windows Server and SQL Server workloads through the Azure Hybrid Benefit program. If you’re heavily Microsoft on-premise, Azure often wins on total cost.
• AWS has the deepest catalog of managed services and the most mature reserved instance and savings plan marketplace. Strong for net-new cloud-native workloads and organizations without existing vendor commitments.
• Google Cloud Platform (GCP) offers sustained use discounts that apply automatically without any commitment, and tends to price compute and especially BigQuery (data analytics) competitively. Increasingly attractive for data-heavy workloads and Kubernetes-native architectures.

For organizations considering multi-cloud, the Cloud Native Computing Foundation (CNCF) maintains standards and tooling that reduce vendor lock-in and help teams manage costs across providers consistently.

Why Companies Overpay After Migration and How to Stop

The Flexera report is blunt: organizations waste about a third of their cloud budget. The root causes are consistent across company sizes and industries. Understanding them is the first step to avoiding them.

Over-provisioning at Migration Time

The most common and costly mistake: teams mirror their on-premise instance sizing in the cloud without rightsizing. On-premise servers are typically purchased with a growth buffer of 30-50%. Replicating that buffer in the cloud means paying for headroom you don’t need, every month, indefinitely.

Rightsize during or immediately after migration. Use cloud provider cost explorer data to identify instances running below 30% CPU/memory utilization those are candidates for downsizing or consolidation.

Lack of Cloud Cost Governance

Without tagging policies, budget alerts, and ownership attribution, cloud spend becomes invisible. Individual teams spin up resources for testing and never shut them down. A development environment from six months ago keeps running at full cost. Storage buckets accumulate data nobody queries.

Implement tagging at the account level from day one. Assign cost ownership to engineering teams. Set up budget alerts at 80% and 100% of monthly targets. According to FinOps Foundation research, organizations with mature cloud financial management practices achieve 20-30% better cost efficiency than those without formal governance.

Failure to Monitor and Optimize Ongoing

Cloud cost optimization is not a one-time activity. Workloads change, usage patterns shift, and new pricing options emerge. Build a monthly review cadence that covers:

• Reserved instance utilization rates (are you using what you committed to?)
• Idle resource identification (stopped instances, unattached storage volumes, unused load balancers)
• Data transfer anomalies (unexpected egress spikes that signal architecture inefficiencies)
• License optimization opportunities (can any workloads move to open-source alternatives?)

For a detailed tactical playbook, see our article on 20 ways to optimize AWS expenses and save over 80% of budget. And for ongoing visibility, cloud monitoring best practices explain how to instrument your environment for both performance and cost signals simultaneously.

Wrong Cloud Model for the Workload

Not every application belongs in the public cloud at the same cost model. Review your workload portfolio against the three primary deployment options:

• Public cloud: Best for variable demand, new applications, and workloads that benefit from managed services at scale. Highest flexibility, OpEx pricing model.
• Private cloud: Appropriate for highly regulated workloads, organizations with strict data sovereignty requirements, or large enterprises with predictable, stable workloads where CapEx investment makes financial sense over a 5+ year horizon.
• Hybrid cloud: The most common enterprise architecture keeps sensitive or stable workloads on-premise while leveraging public cloud for burst capacity, development environments, and new product development.

Future Cloud Infrastructure Costs

After the migration, the cost structure changes. There is a regular fee for computing resources. However, it is only possible to estimate the costs of cloud infrastructure approximately, since it is difficult to predict the exact amount of resources needed to host applications in the cloud.

Fortunately for the customer, the estimate is usually higher than the actual costs. This is because the estimate is based on their own equipment, which is purchased with a margin. In the end, VM resources are optimized, and scaling is done on an as-needed basis.

How to Avoid Unnecessary Expenses

Ironically, many organizations move to the cloud to reduce costs, but in reality they overpay. According to a 2023 report by the American company Flexera, respondents estimated that their organizations lost 32% due to overspending.

Therefore, before migrating, it is necessary to develop a strategy for working and optimizing in the cloud. Depending on the industry, strategies may vary, so it is important to start from the needs of the business and the real VM load.

Here are some tips for avoiding unnecessary cloud infrastructure costs:

Optimize Costs

It is important to track your monthly cloud spending to identify any areas where you may be overspending. If you are not using a cloud service, you should terminate it to avoid paying for it. You should rightsize your VMs to ensure that you are only paying for the resources that you need. You can use spot instances to save money on your cloud costs. 

Control Resource Allocation

To avoid overspending, it is important to use the correct amount of cloud resources. Most often, part of the cloud storage volume is wasted because it is larger than necessary. According to Flexera, 40% of cloud instances exceed the workloads required for operation.

Here are some tips for controlling resource allocation:

• When you create a VM, you should choose the right size for your needs. There are many different VM sizes available, so you should be able to find one that is a good fit for your requirements.
• You can use resource groups and tags to organize your cloud resources. This will make it easier to track your usage and costs.
• You can use autoscaling to scale your cloud resources up or down as needed. This will help you to avoid overprovisioning resources.
• You should monitor your cloud usage to track your resource allocation. You can use a cloud monitoring tool to help you monitor your usage.

Read more: 20 Easy Ways to Optimize Expenses on AWS and Save Over 80% of Your Budget 

Comparing cloud provider services

Comparing cloud provider services is a complex task, but it helps to reduce the overexpenditure of cloud resources. Organizations that work with multiple providers at the same time must regularly review their contracts, which helps to reduce their cost. 

Revaluating assets 

Conduct an assessment to identify and remove assets that have become unnecessary. It is also worth using cloud cost optimization tools.

Choosing a migration model

You can choose one of the three main models, namely migration to:

Public cloud

You purchase the capacities of one or more large data centers that simultaneously cooperate with many clients. This is an option that provides the business with the necessary flexibility and the ability to automate routine tasks.

Private cloud

Development and arrangement of your own cloud infrastructure on your own resources. This is a great solution for large companies with a developed IT infrastructure, a large number of branches, and those who find it difficult to maintain the operability of the system under the old conditions. A private cloud allows you to ensure absolute confidentiality of important data.

Hybrid cloud

A compromise option, when the main array of services and data is serviced on its own resources, and due to an external data center, the company has the opportunity to quickly and confidently scale, as well as test new technological solutions without the risk of “letting in” the main system.

Whichever option you choose, Gart Solutions will help you understand how to design and create a cloud for file storage and hosting your infrastructure, so that your business processes are as protected as possible from the influence of any factors, and are also efficient regardless of the scale of your activities.

Regardless of the method you choose for migration to the cloud, we will help implement all the possibilities of this choice in practice, including automatic backup to the cloud.

Real-World Cloud Migration Cost Results

Theory is useful but migration cost estimates become far more credible when grounded in actual project data. Here are select Gart engagements that illustrate the cost dynamics described in this guide:

• Migration from On-Premise to AWS for a Financial Company  Full infrastructure migration with compliance requirements factored into the cost model from the start.
• AWS Performance Optimization via Nomad Cluster  Demonstrating how architecture changes post-migration can dramatically reduce compute costs for intensive workloads.
• ISO 27001 Compliance and Cloud Migration A case where security requirements shaped both the migra

Conclusion

Migration to the cloud and the transition to a new cost model can be beneficial for business if you approach this process responsibly: compare the costs of local infrastructure and cloud in advance, develop a strategy and carefully monitor costs. Gart Solutions will be happy to take over the “turnkey” migration to the cloud, freeing up the time of your company’s specialists for the implementation of more important projects.

Roman Burdiuzha

Co-founder & CTO, Gart Solutions · Cloud Architecture Expert

Roman has 15+ years of experience in DevOps and cloud architecture, with prior leadership roles at SoftServe and lifecell Ukraine. He co-founded Gart Solutions, where he leads cloud transformation and infrastructure modernization engagements across Europe and North America. In one recent client engagement, Gart reduced infrastructure waste by 38% through consolidating idle resources and introducing usage-aware automation. Read more on Startup Weekly.