5 cost-savings tips for the Azure cloud

Comparing Azure Savings Plan vs Reserved Instance: Deciding between the 2 offers

Welcome to our blog post, where we delve into the comparison of two cost optimization options on Microsoft Azure: Azure Savings Plan vs Reserved Instance.

Azure Savings Plan vs Reserved Instance

In this article, we will explore the key differences between Azure Savings Plans and Reserved Instances, enabling you to make an informed decision based on your specific needs and workload requirements. Join us as we dive into the intricacies between an Azure Savings Plan vs Reserved Instance and discover which option aligns best with your cloud cost optimization goals.

azure savings plan vs reserved instance blog - azure savings plan

What are Azure Savings Plans​?

Azure Savings Plans are a pricing option provided by Microsoft Azure that allows you to pre-pay for compute usage on Azure virtual machines (VMs) and Azure SQL Database compute resources. They offer significant cost savings compared to pay-as-you-go rates, making them an attractive option for businesses looking to optimize their cloud costs.

How Azure Savings Plans work?

  • When you purchase an Azure Savings Plan, you commit to using a specific amount of compute resources (measured in dollars per hour) in a given region over a term of one or three years.
  • The purchased Savings Plan covers the base compute usage of eligible virtual machines and Azure SQL Database compute resources, offering a discounted rate compared to pay-as-you-go pricing.
  • Azure automatically applies the Savings Plan rate to the corresponding resource usage, and you are billed at the discounted rate until the commitment is fulfilled or the term ends.
  • The Savings Plan commitment is applied automatically to the eligible resources in your account, and you don’t need to make manual adjustments for individual VMs or databases.

What are the Benefits of Azure Savings Plans work?

  • Cost Savings: Savings Plans provide significant cost savings compared to pay-as-you-go rates, helping you reduce your overall Azure expenses.
  • Flexibility: Savings Plans allow you to apply the committed usage across multiple VMs and Azure SQL Databases, providing flexibility in resource allocation.
  • Coverage: Savings Plans cover a wide range of VM types and sizes, ensuring that you can benefit from the discounted rates across various workloads and instances.
  • Multi-Account and Multi-Region Support: Savings Plans can be utilized across multiple Azure subscriptions and resource groups within an account, making them suitable for organizations with complex environments.

What are the Use Cases of Azure Savings Plans work?

  • Steady Workloads: Savings Plans are well-suited for workloads that have predictable resource utilization over an extended period, such as production environments with consistent demand.
  • Dev/Test Environments: If you have dev/test workloads that require constant compute resources, Azure Savings Plans can provide cost-effective options for these environments.
  • Database Workloads: Azure Savings Plans also cover Azure SQL Database compute usage, making them beneficial for databases with steady or predictable workload patterns.
  • Continuous Deployment Pipelines: If you use Azure VMs in your continuous deployment pipelines or build servers, Savings Plans can offer cost savings by committing to the expected usage.
azure savings plan vs reserved instance blog - azure reservations

What are Azure Reserved Instances?

Azure Reserved Instances are a purchasing option offered by Microsoft Azure that allows you to reserve virtual machine (VM) instances for a one- or three-year term. By committing to a reservation, you can receive significant cost savings compared to pay-as-you-go rates.

How Azure Reserved Instances work?

  • Azure Reserved Instances are a way to pre-purchase compute capacity for Azure VMs for a specific duration.
  • They offer substantial cost savings compared to on-demand pricing by providing a discounted hourly rate for the reserved instances.
  • Reserved Instances are available in two payment options: All Upfront and Monthly.
  • All Upfront requires paying the full amount in advance, while Monthly allows you to spread the cost over the term.
  • Reserved Instances can be purchased for a one-year or three-year term, giving you flexibility in commitment duration.

What are the Benefits of Azure Reserved Instances work?

  • When you purchase an Azure Reserved Instance, you commit to using a specific VM instance type and size within a particular Azure region.
  • The reservation covers the base compute cost of the chosen instance type and size, providing a discounted rate compared to pay-as-you-go pricing.
  • Azure automatically applies the reservation benefits to the matching VMs in your account, optimizing the billing based on your reservation terms.
  • The reserved capacity can be applied to both new and existing VMs, and Azure ensures that the reserved instances are utilized before charging pay-as-you-go rates.

What are the Use Cases of Azure Reserved Instances work?

  • Production Environments: Reserved Instances are suitable for production workloads that require consistent compute resources and have predictable usage patterns.
  • Database Workloads: If you have databases with steady or continuous compute requirements, Azure Reserved Instances can provide cost savings.
  • Enterprise Applications: Reserved Instances can be beneficial for running enterprise applications that have ongoing resource needs and require capacity assurance.
  • Sustained Workloads: Workloads with consistent and sustained resource consumption, such as web applications or analytics workloads, can benefit from Reserved Instances.

Key Differences Between the Azure Savings Plan vs Reserved Instances

Let’s explore the distinct characteristics and factors and differences between the Azure Savings Plan vs Reserved Instances.

Payment Structure and Flexibility:

    • Azure Savings Plans: Savings Plans offer flexibility in payment options. They provide discounted rates based on a commitment to a specific amount of compute usage, with options for All Upfront and Partial Upfront payments.
    • Reserved Instances: Reserved Instances require an upfront payment for the entire reservation term, offering a lower hourly rate compared to pay-as-you-go. Payment is made in one of two options: All Upfront or Monthly.

Instance Specificity:

    • Azure Savings Plans: Savings Plans are not instance-specific. They provide flexibility by allowing discounted rates to be applied to a broad range of VM sizes and types within the selected region.
    • Reserved Instances: Reserved Instances are instance-specific, meaning you need to choose a specific VM instance type and size when making the reservation.

Applicability and Coverage:

    • Azure Savings Plans: Savings Plans cover virtual machines (VMs) and Azure SQL Database compute resources. They provide flexibility by allowing you to apply them across multiple subscriptions and resource groups within an Azure account.
    • Reserved Instances: Reserved Instances only apply to VMs. They don’t cover other Azure services like Azure SQL Database compute resources. Reserved Instances also require associating the reservation with a specific Azure subscription and region, limiting the coverage to that specific scope.

Workload Flexibility:

    • Azure Savings Plans: Savings Plans provide flexibility in workload placement. The committed usage can be applied to various VMs and Azure SQL Database compute resources within the account, allowing for workload allocation across different services and environments.
    • Reserved Instances: Reserved Instances are tied to a specific VM instance type and size. While they offer flexibility in deploying and redeploying instances within the reservation, they are limited to the chosen VM configuration.

Usage Scenarios:

    • Azure Savings Plans: Savings Plans are suitable for workloads with varying resource demands or unpredictable usage patterns. They are a good fit for environments where flexibility in instance types and sizes is required.
    • Reserved Instances: Reserved Instances are ideal for workloads with predictable and steady resource utilization over a more extended period. They are best suited for production workloads or long-running applications that require capacity assurance.

FinOps

FinOps, a new approach to cloud cost management, emphasizes the collective responsibility of an organization towards its cloud infrastructure and expenses. As part of the “Managing Commitment Based Discounts” capabilities within FinOps, both Azure Savings Plans and Reserved Instances play a crucial role.

For further information on FinOps and its practices, visit the FinOps Foundation website.

Conclusion

In conclusion, when considering the cost optimization options on Microsoft Azure, it’s important to understand the difference between Azure Savings Plan vs Reserved Instances. While Savings Plans provide flexibility and coverage across multiple services, Reserved Instances offer specific instance reservations and long-term commitment advantages. 

Assessing workload characteristics and considering factors such as budget and the need for instance specificity will help businesses make informed decisions. By leveraging the right option, organizations can optimize their cloud spending and unlock the full potential of Azure.

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