Azure Savings Plan vs Reserved Instances: Where Real Savings Come From

Scaling your business on the cloud matters. Choose the wrong service or provider, and you risk higher costs and technical interruptions. We’re going to explain the difference between the Azure Savings Plan vs reserved instances.

We’ll:

• Compare the two services
• Explore key differences
• Discuss cost-savings

Azure Savings Plan vs Reserved Instances: Why the Comparison Matters

Companies rely on Microsoft to provide them with the resources to scale operations. One of the main choices you’ll need to make is: Azure Reserved Instances vs Savings Plan.

We’re going to use the abbreviation RI for Reserved Instances for simplicity:

Cost Optimization

Choosing the wrong plan can lock you into unused resources or reduce flexibility.

For example, buying an RI for a virtual machine(VM) that becomes obsolete wastes money, whereas Savings Plans automatically cover new VM types within the commitment.

Scalability

• Cloud workloads often grow or change; rigid RIs may limit agility.
• Savings Plans allow you to scale and shift resources without losing the benefit of your commitment.

Budget Forecasting

• RIs require careful planning around specific instances.
• Savings Plans simplify forecasting: you know your hourly commitment and discounts apply automatically to any matching usage.

Operational Overhead

Managing multiple RIs for different VM types and regions can be complex. Savings Plans reduce management effort by automatically applying discounts to eligible usage.

Understanding Azure Reserved Instances in Simple Terms

You may need an RI. The main difference between Azure Savings Plan vs Reserved Instances is that you’re committing to a specific:

• VM type
• Region
• Operating system

Your commitment to this specific configuration lasts 1 to 3 years, depending on the contractual agreement. Businesses save up to 72% on costs, but scaling is more complex. You have to cancel RIs or exchange them, which is why Savings Plans are an attractive option.

Do you have variable workloads? RIs may not be your best option.

Breaking Down Azure Savings Plans Without Overcomplicating

Any business with variable workloads may benefit from Savings Plans. You gain flexibility with:

• Compute hours
• Ease of switching configurations
• Discounts applied to usage

While Azure Reservations vs Savings Plan do not seem substantial at first, they are. You gain the freedom to scale with the latter.

Key Differences Between Azure Savings Plan and Reserved Instances

Comparing the two comes down to two main areas: commitment and scope. Azure Savings Plan vs Reserved Instances are broken down into:

Commitment Model

One to three-year commitment on both, but the Savings Plan is a dollar-per-hour spend. RIs are restricted by VM type, OS and region.

Scope & Flexibility

RIs have the option for an exchange, but Savings Plans allow for easy workload scaling. Switch VMs, sizes, OS and more for changing workloads with the Savings Plan.

Risk of Over-Commitment

Since you’re committing to an hourly compute spend, it makes sense that the Savings Plan offers the lower risk. You’ll often see an Azure Reservations vs Savings Plan comparison mention risks.

But the Savings plan makes it simple by charging by computed hours despite a lower discount for RIs.

Software Assets and Licensing

RIs lock you into a pre-purchase agreement for 1 to 3 years for a VM. However, when comparing Azure Reserved Instances vs Savings Plan, you’re essentially on a subscription plan.

Term Length & Renewal Strategy

Azure Reserved Instances and Savings Plan both offer term lengths of 1 or 3 years. Auto-renewal is also available for both options, but should be reviewed.

Which Option Saves More Money Today?

Azure Savings Plan vs Reserved Instances – which saves more money? That depends on your workload’s flexibility needs and stability.

Short-Term Savings

• RIs are best for workloads you are certain will run 24/7 for the entire year on a specific configuration
• SPs are best for workloads that run consistently but are expected to change in size, region or service

Long-Term Savings

• RIs are ideal for mission-critical infrastructure
• SPs are ideal for the majority of compute baselines where the infrastructure is dynamic, frequently scales, or uses multiple compute services

Hidden Costs and Pitfalls Companies Rarely Notice

No comparison of Azure Reservations vs Savings Plan is complete without talking about potential hidden costs.

• Forecasting complexity. SP requires reliable forecasting to avoid a high PAYG rate for overages. RI needs perfect forecasts to prevent wasted RI or administrative exchanges.
• Licensing oversights. Discounts only apply to the computation. Azure Hybrid Benefit must be applied separately to maximize savings.
• Cancellation costs. RIs can be canceled for a refund. But this comes with a 12% early termination fee. SPs can’t be canceled.
• Use it or lose it. RIs reserve capacity for a specific VM type or region. The prepaid capacity is wasted if the resource is shut down or changed. SPs commit to a fixed hourly spend. Usage below this is wasted.

How Businesses Combine Both Models for Maximum Efficiency

A hybrid approach is the best strategy for most SMBs. Why? Because RI are always applied first (due to the higher discount). SP is applied second.

• Use RI for the absolute baseline. Identify your 24/7 core compute usage that is most critical. Think production databases, domain controllers or minimum web server count. Choose the 3-year RI for this specific and unchanged resource to capture the 72% discount.
• Use SP for the variable bulk. Analyze the non-RI covered compute spend over the last year. Determine a conservative average hourly spend commitment. Purchase a plan for this amount to cover flexible workloads and ensure a discount of up to 65%.

Pay-as-you-go serves as the buffer to cover usage that exceeds these plans.

Real Examples of When Each Model Wins

Scenario	Winning Model	Why it Wins
Seasonal e-commerce retailer	Hybrid model	SP covers the predictable average of flexible compute. RI covers the 24/7 server fleet.
Legacy ERP system	RI	Runs in a fixed region with no plan changes for 3+ years. The discount of up to 72% maximizes savings.
New microservices platform	SP	Flexibility ensures that the discount applies to all eligible compute and avoids RI waste from constant changes.

Summary: A Clear Answer for Most Businesses

Businesses with dynamic or cloud-native workloads may find it hard to choose between Azure Reserved Instances vs Savings Plans.

The ideal state is a hybrid model that leans heavily on the Azure Savings Plan.

• Highly predictable workloads that do not change configuration benefit from the 3-year Reserved Instance plan.
• The 3-year Azure Savings Plan is a smart option for all other consistent compute usage.

The Savings Plan offers flexibility and ease of management that automatically applies discounts across services and regions. Businesses generally find higher realized savings with this approach compared to Reserved Instances.