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What's the difference between Azure savings plans for compute and Azure reservations?

GregorWohlfarter

Microsoft

Jul 09, 2024

A guide to help you choose the best option for your cloud computing needs

Introduction

Cloud computing is a powerful and flexible way to run your applications and services, but it can also be confusing and costly if you don't know how to optimize your spending. Azure offers different options to help you save money on your costs in Azure, depending on your usage patterns and needs. In this article, we will compare and contrast two of these options: Azure savings plans for compute and reservations. We will also show you how to combine them to maximize your savings and flexibility. By the end of this article, you will have a better understanding of how to leverage these options to reduce your cloud computing bills and achieve your business goals.

What is an Azure savings plan for compute?

Azure savings plan for compute allows you to save up to 65% off usage of eligible compute resources, in exchange for making a fixed, hourly spend commitment for 1- or 3- years[1]. Savings plans benefits are available to a wide array of compute services, including Azure Virtual Machines, Azure App Service and Azure Functions premium plan. If you have consistent spend across different compute services, purchasing a savings plan may help reduce your overall costs.

Savings plan discounts apply to compute infrastructure charges (e.g., CPU, RAM, and storage) and vary based on the combination of compute service and region. The length of commitment term, not hourly commitment, governs the size of the discounts. Savings plans provide a discount, but do not affect the runtime state of your resources. Savings plan discounts do not apply to software licensing costs (e.g., Windows, Windows Server, or SQL Server). Azure Hybrid Benefit can be to reduce these licensing costs[2].

Under the savings plan model, Azure applies savings plan discounts to your eligible savings plan-eligible usage - usage from resources with the largest savings plan discount percentage is discounted first). The resulting charges are then deducted from your hourly commitment. Once the hourly commitment is exhausted, any remaining usage is billed at your pay-as-you-go rates.

Because this is an hourly commitment, even when there isn't enough eligible usage in an hour to fully consume the commitment, you are still billed for the hour's entire commitment.

Figure 1 Azure savings plans: Your global, flexible, and automatic path to savings

Azure savings plans – automatically flexible

Savings plans automatically apply the commitment to usage that would most benefit from it - regardless of service or region[3]. Since usage from resources with the highest savings plan discount always go first, you don’t have to worry about actively managing your commitment – savings plans automatically adapts to your usage patterns.

Savings plans are not tied to a specific Azure region or compute service – savings plans can provide cost savings on more than a half dozen compute services, including Azure Virtual Machines and Azure App Service. View a list of all included compute services, or view savings plan pricing in Azure pricing calculator, on the Azure Pricing page or by downloading your Azure price list.

Savings plans can be configured to make their discounts available to your entire EA billing account (aka enrollment) or MCA billing profile, or a specific management group, subscription, or resource group[4]. You can change the scope of your savings plan at any time.

While you can change the benefit scope of a savings plan, you are unable to modify the hourly commitment or change the term. In addition, as savings plans are inherently adaptable to changes to which compute services you utilize, you cannot cancel or exchange savings plans.

Figure 2 One plan, all locations: The global power of savings plans

What is an Azure reservation?

Azure reservations allow you to save up to 72% off usage of specific Azure resources, in exchange for making a 1-, 3-, or 5-year usage commitment[5]. Reservations are ideal for workloads that run continuously throughout the day, operate in one Azure region, and are not expected to materially change their infrastructure requirements in the next 1-, 3-, or 5-year. Azure reservations are available for a wide array of Azure services, including Azure Virtual Machines, Azure SQL database, and Azure Cosmos DB. If you have consistent and continuous usage of a particular Azure product, in a specific region, purchasing a reservation for that product can help reduce your overall costs.

Reservation savings apply to infrastructure charges (e.g., CPU, RAM and storage) and vary based on the Azure product and region. Like with savings plans, the commitment term of the reservation governs the discount. A reservation provides a discount but does not affect the runtime state of your resources. Reservation savings do not apply to software licensing costs (e.g., Windows, Windows Server, or SQL Server). However, Azure Hybrid Benefit can be to reduce these licensing costs.

By purchasing a reservation, you prepay, and commit to using a specific Azure product in a particular region. Each hour, your pay-as-you-go usage is evaluated, but instead of paying the pay-as-you-go rate, the prepaid reservation benefit is automatically applied to matching resources. Once all matching reservations are consumed, any remaining usage is billed under the savings plan model (if available) or at your pay-as-you-go rates. Because reservations are an hourly commitment, even when there isn't enough eligible usage in an hour to fully consume the reservation, you still incur charges for the reservation each hour.

Reservation products are interchangeable with each other if they're the same type of reservation. For example, you can exchange multiple compute reservations including Azure Dedicated Host, Azure VMware Solution, and Azure Virtual Machines with each other all at once[6]. You can also exchange multiple SQL database reservation types including SQL Managed Instances and Elastic Pool with each other. However, you can't exchange dissimilar reservations. For example, you can't exchange an Azure Cosmos DB reservation for SQL Database.

You may also exchange a reservation to purchase another reservation of a similar type in a different region. For example, you may exchange a reservation in West US 2 for one that's in West Europe.

Azure Reservations – deep discounts for all your predictable workloads

Azure reservations are the best cost savings option for your stable and continuously running workloads. A workload is considered stable if its infrastructure requirements are not expected to change during the term of a reservation. Workloads that run for most of the day are likely good candidates for reservations. Azure reservations are available for multiple Azure products, including compute, database and analytics.

Reservations for VMs are also known as virtual machine reserved instances (VM RIs). Along with the deep discounts, these reservations provide the option of greater flexibility via Instance size flexibility[7]. This feature allows the reservation discount to be applied to other VMs in the same VM size group. For example, if you buy a Standard_DS3_v2 VM reservation, you may opt to allow the reservation to apply to other VM sizes in the DSv2 series (e.g., Standard_DS1_v2, Standard_DS2_v2, Standard_DS3_v2 or Standard_DS4_v2). Review this article to learn more about instance size flexibility.

In the future, while instance size flexibility for VMs will remain, exchanges of instance series or regions for Azure Virtual Machine, Azure Dedicated Host and Azure App Service reservations will no longer be supported. Please see this article for more information.

View a list of all supported services, or view reservation pricing in Azure pricing calculator, on the Azure pricing page or by downloading your Azure price list.

Like savings plans, reservations can be configured to make their discounts available to your entire EA billing account or MCA billing profile, or a specific management group, subscription, or resource group. You can change the scope of your reservation at any time.

How to compare savings plans and reservations?

Now that we have explained what savings plans and reservations are, let's compare and contrast them to see where they differ and how they can help you optimize your cloud computing spending.

Depending on your usage patterns and needs, savings plans and reservations are two options that can help drive cost savings on your infrastructure costs[8]. They can both be combined with Azure Hybrid Benefit to save on licensing costs for Windows Server and SQL Server. However, they also have key differences that you should consider before you choose one or the other.

	Reservations	Savings plan
Target	Workloads running continuously in the same region, with no planned changes	Dynamic/evolving workloads running in different regions
Savings compared to pay-as-you-go	Save up to 72%	Save up to 65%
Commitment	Usage of a specific product in a particular region (e.g., D2v4 VM in Japan East)	Hourly amount (e.g., $5/hr.)
Benefit order	Applied first	Applied
Term	1, 3, or 5 years	1 or 3 years
Payment options	Upfront or monthly	Upfront or monthly
Modifications	Exchange reservations¹ Trade-in VM, Dedicate Host or App Service reservations for savings plan Cancel reservations²	No cancellations

¹Subject to upcoming changes to reservation exchange policy

²Subject to $50,000 USD in a revolving 12-month period

Examples

In this section, we will present two examples of how to compare Azure reservations with Savings Plan for Compute, based on different scenarios and assumptions. These examples are intended to illustrate the potential savings and trade-offs of each option, as well as the factors that affect the decision. Both examples assume that workloads operate 24 hours a day. The pricing used in the following examples are retrieved from the Azure Pricing calculator as of May 2024.

Example 1: Reservations

In this example, we have workloads spread across two regions - East US and West US. The workloads are powered by 2 Virtual Machine instances and 2 Azure SQL Databases in each region, and there are no planned changes to these resources. Purchasing reservations for a 3-year term will achieve the highest savings.

Reservations Estimate
Service type	Region	Description	PAYG monthly cost	Discount 3 years	Monthly cost	Monthly savings
Virtual machines	East US	4 D2 v3 (2 vCPUs, 8 GB RAM) (3 year reserved), Windows (License included), OS Only; 0 managed disks – S4; Inter Region transfer type, 5 GB outbound data transfer from East US to West US	$548.96	31%	$376.18	$172.78
Virtual machines	West US	4 D2 v3 (2 vCPUs, 8 GB RAM) (3 year reserved), Windows (License included), OS Only; 0 managed disks – S4; Inter Region transfer type, 5 GB outbound data transfer from West US to East US	$610.28	34%	$416.86	$193.42
Azure SQL database	East US	Single Database, vCore, General Purpose, Provisioned, Standard-series (Gen 5), Locally Redundant, 2 - 2 vCore instance(s), 3 year reserved, 32 GB Storage, RA-GRS Backup Storage Redundancy, 0 GB Point-In-Time Restore, 0 x 5 GB Long Term Retention	$745.94	35%	$501.46	$244.48
Azure SQL database	West US	Single Database, vCore, General Purpose, Provisioned, Standard-series (Gen 5), Locally Redundant, 2 - 2 vCore instance(s), 3 year reserved, 32 GB Storage, RA-GRS Backup Storage Redundancy, 0 GB Point-In-Time Restore, 0 x 5 GB Long Term Retention	$792.30	35%	$523.38	$268.93
Total			$2,697.49		$1,817.88	$879.61

Disclaimer
All prices shown are in United States Dollars (USD). This is a summary estimate, not a quote. For up-to-date pricing information please visit https://azure.microsoft.com/pricing/calculator.
This estimate was created at 5/21/2024 8:52:39 AM UTC.

We need a total of 4 reservations because reservations are bound to a single region, and we have compute and database services within two different regions. By having 4 reservations, we can achieve a monthly savings of $879.61, which results in savings of $31,665.96 over our 3-year term.

Example 2: Savings Plans for Compute

In this scenario, our customer, Fabrikam, has their operations set up across three key regions: West US, West Europe, and East Asia. Each region has a set of resources dedicated to running their critical workloads, ensuring continuous operations.

The workloads are designed to run for 8 hours in each region, following the local business hours, which allows Fabrikam to take advantage of the lower cost associated with off-peak hours in each region. This approach not only optimizes resource utilization but also aligns with the "follow the sun" model, providing seamless service to their global customer base.

By adopting the Savings Plans for Compute, Fabrikam commits to a consistent amount of compute usage (measured in $/hour) for a 1 or 3-year period. In return, they receive a significant discount compared to pay-as-you-go rates. The following example illustrates how Fabrikam can leverage Savings Plans for Compute covering their App Services running in West US, West Europe, and East Asia.

Savings Plan Estimate
Service type	Region	Description	PAYG 8 hours/day	Discount 3 years	Monthly cost 8 hours/day	Monthly savings	Hourly commitment
App Service	West US	Premium V3 Tier; 1 P3V3 (8 Core(s), 32 GB RAM, 250 GB Storage); 3 year savings plan; Windows OS; 0 SNI SSL Connections; 0 IP SSL Connections; 0 Custom Domains; 0 Standard SLL Certificates; 0 Wildcard SSL Certificates	$42.88	24%	$32.80	$10.08	$1.025
App Service	West Europe	Premium V3 Tier; 1 P3V3 (8 Core(s), 32 GB RAM, 250 GB Storage); 3 year savings plan; Windows OS; 0 SNI SSL Connections; 0 IP SSL Connections; 0 Custom Domains; 0 Standard SLL Certificates; 0 Wildcard SSL Certificates	$43.26	24%	$33.02	$10.24	$1.032
App Service	East Asia	Premium V3 Tier; 1 P3V3 (8 Core(s), 32 GB RAM, 250 GB Storage); 3 year savings plan; Windows OS; 0 SNI SSL Connections; 0 IP SSL Connections; 0 Custom Domains; 0 Standard SLL Certificates; 0 Wildcard SSL Certificates	$48.26	26%	$35.74	$12.51	$1.117
Total			$3,066.00		$2,317.01	$32.83	$1.025

Disclaimer
All prices shown are in United States Dollar (USD). This is a summary estimate, not a quote. For up-to-date pricing information please visit https://azure.microsoft.com/pricing/calculator.
This estimate was created at 6/19/2024 12:22:34 PM UTC.

Our example shows that pay-as-you-go prices and regional discounts differ slightly. The West US region generally offers the lowest app service rates, while East Asia has a higher discount of 26%, compared to 24% elsewhere. Our workload operates for 8 hours per region, rotating the savings benefit as we transition from one region to another. It's best to opt for a single, minimum-hourly-commitment savings plan to avoid underuse. This results in selecting a $1.205 hourly rate for our Compute Savings Plan. Manual calculations are unnecessary; Azure Advisor will recommend a suitable baseline to cover your needs, and during purchase, you'll see an hourly commitment suggestion based on past data.

This example illustrates the financial benefits and operational efficiency that can be achieved through strategic planning and the utilization of Savings Plans for Compute. It demonstrates how a "follow the sun" model can be effectively implemented to maximize savings while maintaining continuous global operations.

How to utilize both savings plans and reservations

Leverage Azure Advisor recommendations in the following order
Right size/shutdown VMs
Exchange any underutilized previously purchased reservations
Trade-in VM, Dedicated Host & App Service reservation for a savings plan
Purchase reservations based on recommendations
Purchase savings plan based on recommendations

How to consider the Microsoft Azure Consumption Commitment (MACC) discount?

Many Enterprise Customers might have an existing Microsoft Azure Consumption Commitment (MACC) discount[9]. This is a discount that is based on your commitment to spend a certain amount on Azure services for a specified time, usually one or three years. The MACC discount applies to the pay-as-you-go rates of your eligible Azure services, and it can vary depending on your commitment level and contract terms. However, the MACC discount does not stack with the savings plan or reservation discounts. This means that if you purchase a savings plan or a reservation, you will not get the MACC discount on top of the savings plan or reservation discount. Instead, you will get the higher of the two discounts.

Summary

In this article, we have compared and contrasted Azure savings plans for compute and reservations, two options that can help you save money on your costs in Azure. Here are the main points to remember:

Savings plans provide a flexible and global way to save on the infrastructure costs of compute services. They automatically apply to any eligible compute service, instance type, or region, and can be changed as your needs evolve. You can share your savings plan across your entire billing scope and change the scope at any time. While it is possible to increase your commitment at any time, it cannot be decreased or canceled before the end of the term. Savings plans offer up to 65 percent in savings and can be combined with Azure Hybrid Benefit for additional savings on licensing costs.
Reservations provide a predictable and stable way to save on the infrastructure costs of your service. You can reserve a specific service, instance type, and region by paying the upfront cost. Reservations can be canceled or exchanged at any time, subject to a limit of $50,000 USD per 12-month rolling window. You can also modify your reservation by changing the instance size within the same family or the region within the same geographic area. However, exchanging a reservation for a non-compute service is only possible under certain conditions. With reservations, you can save up to 72 percent and combine them with Azure Hybrid Benefit for additional savings on licensing costs.
Reservations cover more services than just compute, but they are less flexible than savings plans, since they are tied to a specific service, instance type, and region. Reservations are ideal for workloads that are stable and predictable, and have no planned changes.
A reserved instance is a type of reservation that targets virtual machines. You can reserve a specific VM size and region, and get a discount on your VM costs. Reserved instances are ideal for workloads that run continuously or for long periods of time, such as web servers, databases, or batch processing.
Savings plans and reservations can be combined to maximize savings and flexibility. Reservations can be used for stable and predictable workloads, while savings plans are ideal for dynamic and evolving workloads. Azure automatically applies the reservation discount first, followed by the savings plan discount for any remaining usage until the savings plan commitment is fully utilized. Any usage not covered by either option is charged at the pay-as-you-go rate. Different types of reservations and savings plans can be mixed and matched depending on the services, instance types, and regions used.
You should also consider the Microsoft Azure Consumption Commitment (MACC) discount, if you have one, when you compare the savings plan or reservation options. The MACC discount applies to the pay-as-you-go rates of your eligible Azure services, and it can vary depending on your commitment level and contract terms. However, the MACC discount does not stack with the savings plan or reservation discounts. You will get the higher of the two discounts, if you purchase a savings plan or a reservation.

We hope that this article has helped you to understand how to choose between Azure savings plans for compute and reservations, and how to combine them to optimize your cloud computing spending. If you have any questions, feedback, or experiences to share, please feel free to leave a comment below. We would love to hear from you.