Azure Reservations and Azure Savings Plans

You can save a lot of money in Azure by committing to the use of resources for one year or three years. The best-known example is Reserved Instances for Azure virtual machines, but there are many more options. Microsoft is copying AWS for this and has introduced the Savings Plan a while ago. This article discusses the possibilities of reservations and the Savings Plan.

What are Azure Reservations?

Azure reservations help you save money on using certain resources in Azure. By committing to a one-year or three-year subscription, you get a discount on the resources you use. Reservations can save you up to 72% on your resource costs compared to pay-as-you-go pricing. Reservations discount the invoice and do not affect the runtime status of your resources. After you purchase a reservation, the discount automatically applies to the matching resource.

You can pay for a reservation in advance or monthly. The total cost of pre-payment and monthly payments for reservations is the same and you do not have to pay a surcharge if you choose to pay monthly.

If you have consistent resource usage that supports reservations, purchasing a reservation gives you the opportunity to lower your costs. For example, if you continuously run instances of a service without using a reservation, Microsoft will invoice using pay-as-you-go rates. When you buy a reservation, you immediately receive a discount. The resources will no longer be invoiced at pay-as-you-go rates.

For which resources are reservations available?

Organizations often use Reservations for virtual machines, but there are many more possibilities. Reservations can currently be applied to these services:

The offer may change from time to time. In the Azure portal you can always check which reservations are available and order them if necessary. Search for reservations and click on add at the top left.

You can find a brief description of the costs covered by the various reservations here.

What are the reservation options?

When entering into a reservation you have to make a number of choices:

• The term. Would you like a reservation for 1 or 3 years? The highest discount is given for a 3-year reservation, but then you are committed to it for longer;
• The Azure Datacenter. For example Western Europe or US West
• The scope. Here you can choose from:
  • Shared. The reservation is applied to all current subscriptions;
  • Subscription. The reservation is applied to resources in a specific subscription;
  • Resource group. The reservation is applied to a resource group that you define.

The reservation is automatically applied by Azure to eligible resources within the chosen scope. You do not have to assign the reservation to a resource yourself. In fact, you cannot assign it directly to a resource yourself. The only way to assign a reservation to a specific resource (e.g. a VM) is to create a resource group containing only that specific resource (e.g. that VM) and then assign the reservation to that resource group.

Can I get rid of it?
If a reservation no longer fits, you have the following options:

• Adjust the scope. The reservation may still be usable for a resource in a broader or different scope;
• Exchange the reservation. You can return existing reservations to purchase new reservations of the same type. You cannot exchange reservations of one type for another. For example, you cannot return a VM reservation to purchase a SQL reservation. You can change a reservation property such as family, series, version, SKU, region, quantity, and term with an exchange;
• Cancel the reservation. You can also refund reservations, but the total of all canceled reservations in your agreement, such as EA or Microsoft Customer Agreement (CSP), cannot exceed USD 50,000 in any rolling 12-month period.
  

What are Azure Savings Plans?

Azure savings plans save you money when you have consistent usage of Azure compute resources. An Azure savings plan helps you save money by committing to a fixed hourly rate of compute services for one or three years. A savings plan can reduce your resource costs by up to 65% over pay-as-you-go pricing.

You can pay for a reservation in advance or monthly. The total cost of pre-payment and monthly payments for reservations is the same and you do not have to pay a surcharge if you choose to pay monthly.

You will receive a discount on the calculation service every hour until the fixed hourly amount is reached. Any usage above that amount will be charged as pay-per-use with no discount. If you use less than the fixed amount in an hour, you will not be refunded the unused portion.

In the picture below, the “Hourly amount” is the hourly amount that you set, for example € 5 per hour. The “Savings plan prices” indicates the use for which you receive a discount. The “Pay-as-you-go prices” indicate usage above € 5 per hour, on which you do not receive a discount. Finally, the “Unused savings” plan shows how much you have not used, but have paid. The trick is therefore to determine the hourly amount in such a way that the use is as little as possible above the green line, because you will not receive a discount on that, and that the use is as little as possible below the green line, because then you pay for nothing.

To which resources can you apply Savings Plans?

Savings Plans are available for fewer resources than reservations:

What are the reservation options?

When entering a Savings Plan you have to make some choices:

• The term. Would you like a Plan for 1 or 3 years? The highest discount is given for a 3-year Plan, but then you are committed to it for longer;
• The scope. Here you can choose from:
  • Shared. The Plan is applied to all current subscriptions;
  • Subscription. The Plan is applied to resources in a specific subscription;
  • Resource group. The Plan is applied to a resource group that you define.

You do not have to choose a Data Center. The plans can be applied worldwide.

The benefit of the savings plan applies almost immediately after purchase without you having to take any other actions. Every hour, Microsoft applies the benefits to eligible meters within the chosen scope. The benefits are applied first to the meter with the largest discount percentage. The chosen scope of the savings plan determines where the benefit applies.

Can I get rid of it?
If a Savings Plan no longer fits, you have the following option:

Adjust the scope. The plan may be useful for a resource in a broader or different scope.

You cannot exchange a Savings Plan because all options (region, type, size) are already included in the Savings Plan.

You cannot cancel a Savings Plan.

So, will it be a reservation or a Savings Plan?

Reservations are made for a specific type of virtual machine in a specific Azure region. For example, a D2v4 VM in Western Europe for one year. With an Azure savings plan, you commit to a fixed amount per hour on computing services. For example, $5 per hour for computing services for one year. Reservations only apply to the combination of the specific compute service and the region. With an Azure Savings Plan, you do not have to choose a VM type or a region. The savings will be used for all available resources.

Does that make a Savings Plan better? Not always. Reservations are available for more services and provide higher discounts. In addition, they can be canceled for up to USD 50k (per 12 months).

In addition, reservations can often be exchanged if a changing environment requires this. It is important to know that Microsoft will limit the possibilities for this. For reservations purchased from January 1, 2024 onwards, you can continue to exchange within series, but the ability to exchange across series or regions will disappear for Azure Reserved Virtual Machine Instances, Azure Dedicated Host reservations, and Azure App Services reservations.

It is quite possible to use reservations and Savings Plans side by side, also in the same environment, i.e. within the same scope. You could choose to provide reservations for the machines that will almost certainly be used continuously and provide a Savings Plan for the remainder. With automatic allocation, Azure first allocates the reservations to the resources that provide the highest savings and then uses the Savings Plan to the following resources.

It can be quite difficult to make the right choices. If in doubt, call in an expert. Wrong choices can be very expensive!