Lets break this down...

$5 for 20Gb droplet so $1.25 for backups.

Assuming shadow copy backups (no compression, just straight bit for bit) then 4 backups times 20Gb is 80Gb. 80Gb of AWS S3 storage on the most expensive tier is $.03 / Gb which would be $2.40 if backed up to S3.

I agree it's not THAT crazy.

Devil's advocate but you could push that to Amazon's Glacier storage. Also Amazon charge for bandwidth in addition to the storage cost.

Yes you could which would reduce the price for AWS storage (highest priced tier is $.03/GB for S3 and $.01/GB for glacier).

I mention in another comment the cost of bandwidth.

To play devils advocate... I assume (and hope) that when you need to restore a droplet from a backup that it a LOT more seamless and streamlined than trying to restore from AWS S3 or Glacier.

To snapshot EBS volumes in EC2 is pennies per GB. 20% flat is crazy.

Its really not though, as long as you are using the smaller droplets.

$5/month 20 GB droplet would be 80 GB of backups for $1.25 on AWS S3 that would cost $2.40

$10/month 30 GB droplet would be 120 GB of backups for $2.50 on AWS S3 that would cost $3.60

$20/month 40 GB droplet would be 160 GB of backups for $5.00 on AWS S3 that would cost $4.80

$40/month 60 GB droplet would be 240 GB of backups for $10.00 on AWS S3 that would cost $7.20

$80/month 80 GB droplet would be 320 GB of backups for $20.00 on AWS S3 that would cost $9.6

ADD: Then if you compare outgoing to internet bandwidth costs DO is better.

Assume you use all 1 TB of your small droplets bandwidth. That's included in your $5 while on AWS that will cost you an extra $89.91.

UPDATE: Bandwidth pricing for droplets is for incoming and outgoing, so assuming 50/50 (bad assumption) then AWS would cost you $44.91 more per month.

DO also do snapshots. This is about their backup offering.