Azure Consumption Commitments
Introduction – Why Commitment Level Matters
Microsoft often pushes customers toward large Azure spending commitments by dangling attractive discounts.
However, finding the right level of commitment is crucial. Overcommit to Azure and you risk paying for unused “shelfware” cloud services that you never utilize.
Undercommit and you miss out on volume discounts, potentially paying higher rates for any usage beyond your commitment.
The goal is to strike a balance that maximizes savings without crippling flexibility. A higher commitment can unlock lower prices, but it obligates you to spend a set amount regardless of need.
A lower commitment keeps you agile and avoids waste, but any usage above that commitment might be charged at full, non-discounted rates.
We explore how Azure commitments work, the dangers of over- or under-committing, and how to negotiate a level that delivers savings while managing risk.
Read our comprehensive guide to Negotiating Azure & Cloud Spend Commitments.
How Azure Consumption Commitments Work
Azure consumption commitments are essentially a prepaid cloud budget.
Under an Enterprise Agreement (EA) or a Microsoft Customer Agreement (MCA), you agree to spend a certain amount on Azure over a period (e.g., over a multi-year term).
In return, Microsoft offers discounted rates on that Azure usage. You then consume services against this commitment “bank.” If you don’t use all of the committed funds by the end of the term, the remainder expires – it’s a “use it or lose it” deal.
Different contract models handle commitments differently. Under an EA, a company makes a multi-year Azure spend commitment in exchange for enterprise discounts (but is locked into paying that amount).
Under an MCA, there’s no required commitment – you can simply pay for Azure as you go, although large spenders can negotiate a commitment for discounts, similar to an EA.
In a CSP arrangement (through a partner), there is no monetary commitment at all; you just pay monthly for what you use. This maximizes flexibility, but you typically pay near-standard rates (no significant volume discount unless provided by the partner).
In summary, an Azure commitment works like a cloud spending pledge: you promise to spend $X, and Microsoft gives you better pricing.
But if you spend less, you still have to pay for the full $X. That dynamic is why choosing the right number is so important.
The Risks of Overcommitting
Overcommitting means committing to more Azure spend than you actually need.
The risks include:
- Wasted budget: Any portion of your commitment you don’t use is money thrown away, since unused Azure funds expire at period end.
- No rollover: Without special terms, unused commit funds can’t carry into the next period. It’s purely “use it or lose it.”
- Opportunity cost: Money locked into unused Azure services could have been spent on other priorities.
It’s usually safer to err on the side of a slightly lower commitment than to overcommit. Overcommitting not only wastes money but can also encourage bad behavior (like teams hurriedly spending cloud credits on low-priority work just to avoid losing them).
The Risks of Undercommitting
On the flip side, undercommitting – setting your commitment too low – can lead to other problems:
- Higher costs on overages: Usage beyond a tiny commitment will be billed at full pay-as-you-go rates (with little to no discount), so those extra units cost much more.
- Missed discounts: By committing less, you likely secured a smaller discount (or none). If you end up using far more, you miss out on the savings you could have had with a larger commitment level.
- Weaker leverage: A minimal commitment can signal caution to Microsoft and yield fewer concessions. And if you greatly exceed a low commitment, Microsoft will push for a much higher commitment next time, knowing you truly needed more.
Undercommitting keeps you flexible, but it can be a costly flexibility if your usage ends up well above that commitment.
Avoid unexpected costs, Preventing Azure Overruns: Negotiating Caps and Flexibility.
Setting the Right Commitment Level
Choosing the ideal Azure commit level requires data and pragmatism. Start with your own historical usage and growth trends, then factor in upcoming projects or migrations that could increase cloud consumption.
It’s wise to project a few scenarios low, expected, and high usage cases for the coming term. Gauge the range between a slow-growth scenario and a rapid-growth scenario.
With those in mind, aim for a commitment near your most likely (expected) case, but a bit under it. That way, you’re likely to consume the full commitment while leaving a cushion if your needs are lower than expected.
In practice, it’s often better to slightly undercommit than overcommit. If usage exceeds your commit, you’ll pay a bit more on the excess, but if you overcommit and usage falls short, you pay for value you never use.
Overcommit vs. Undercommit Trade-Offs
| Commit Type | Benefit | Risk | Mitigation |
|---|---|---|---|
| High Commit | Lower unit prices (bigger discount) | Shelfware risk (unused spend) | Negotiate a rollover or “true-down” clause for unused funds |
| Low Commit | Greater flexibility if needs change | Higher costs on extra usage (pay-as-you-go rates) | Secure price protections and rights to adjust commit upward if needed |
A high commitment can yield better pricing but risks waste, while a low commitment avoids waste but can increase costs on additional usage.
To soften these downsides, negotiate contract clauses, for example, carrying over a portion of unused funds, or allowing a mid-term commitment increase so you can lock in discounts on growth.
Use benefits to lower costs, Hybrid Use Benefits: Leveraging On-Prem Licenses in Azure.
Negotiation Tactics for Commitments
When negotiating your Azure contract, consider these tactics:
- Ramp-up commitments: Instead of a flat commitment for every year, negotiate a ramp. For example, a lower commit in Year 1 and a higher commit in Year 2 or 3 as your Azure usage grows. This avoids overpaying in the early stages of a project.
- Rollover allowance: Push for the ability to roll over some unused Azure spend into the next period. Even a modest carryover (e.g. 10%) provides a buffer so that not every unused dollar is lost.
- Discounted overage rates: Ensure that any usage beyond your commitment is still charged at your negotiated rate. In other words, your discount should apply to all usage, not just up to the commitment amount. This prevents a cost “cliff” if you go beyond the commitment.
- Usage flexibility: Negotiate the right to apply your committed spend to any Azure services or regions. Make sure your commit isn’t tied to a specific product or locale. If your usage mix shifts or you expand to new regions, you can still fully utilize your commitment.
These tactics help protect you from common pitfalls. Microsoft might not offer these terms upfront, but for a significant deal, they can often be achieved. It never hurts to ask for safeguards that make your commitment more forgiving.
Commitment Level Essentials: A Checklist
Before finalizing your Azure commitment, ensure you’ve covered these essentials:
- ✓ Forecast with real data: Base your commitment on your own usage stats and realistic growth plans, not just Microsoft’s projections.
- ✓ Plan for variance: Know how you’ll handle things if usage is much lower or much higher than expected.
- ✓ Embed flexibility: Try to get terms like rollover of unused funds or mid-term adjustments written into the contract.
- ✓ Align with growth: Match commitment amounts to your adoption curve (consider phasing it over time rather than a one-shot figure).
- ✓ Cap surprises: Negotiate caps on price increases and ensure overages won’t be charged at an exorbitant rate.
Hidden Contract Pitfalls
Watch out for fine-print issues in Azure agreements that could undermine your savings:
- Expiry of unused credits: Unused commitment funds expire at the end of each term. Many customers only realize this at year-end and then scramble to spend leftover budget so it doesn’t go to waste. Plan to avoid a last-minute rush.
- Enticing incentives: Microsoft may offer “free” services or credits if you agree to a higher commitment. These can be tempting, but don’t let them lure you into an unrealistic commitment. Only take on a bigger commitment for incentives if those extras genuinely bring value and you plan to use them.
- Auto-renew clauses: Be wary of any term that automatically renews your Azure commitment at the same or higher level without renegotiation, or that builds in automatic yearly increases. You want the ability to reassess needs at renewal, not an ever-escalating obligation.
By spotting these potential pitfalls, you can address them in your negotiations and avoid surprises later.
FAQs
Q: What happens if we exceed our Azure commitment?
A: You pay for the extra usage beyond your commitment at your agreed rate. There’s no penalty your services keep running but Microsoft will likely urge a higher commitment next time.
Q: Can unused Azure credits roll over to the next period?
A: Not by default. Unused committed funds expire at the end of the term unless you negotiate a special rollover clause (which is rare).
Q: Is a phased (ramp-up) commitment negotiation realistic?
A: Yes. Microsoft often allows a ramp-up commitment if you have a clear rationale, and many enterprise agreements use this approach.
Q: How do EA and MCA commitments differ?
A: An EA is a 3-year contract that requires a fixed annual Azure spend commitment with discounts, so it’s relatively rigid. An MCA is a more flexible agreement with no required Azure commitment – you pay-as-you-go unless you choose to commit for discounts.
Q: What’s the best strategy for multi-region Azure usage under one commitment?
A: Whenever possible, use a single global Azure commitment for all regions. That way, high usage in one area can offset lower usage elsewhere under the same commitment. Ensure your contract doesn’t restrict the commitment by region. If you must split commitments, right-size each one based on its own forecast. Overall, one larger commitment usually offers more flexibility and savings than multiple smaller ones.
Five Expert Recommendations
- Never accept Microsoft’s initial consumption forecast as your baseline. Do your own homework – vendor estimates often aim high.
- Model multiple usage scenarios before finalizing a commit. Assess the best, expected, and worst cases to understand the range.
- Negotiate for flexibility, like rollover or reallocation of unused funds. Such clauses can save money if your needs change.
- Secure pricing protections (cap price increases) in multi-year deals. Don’t let cloud cost hikes erode your negotiated savings.
- Revisit and adjust commitments at each renewal. Treat your Azure commit as a lever to tweak as your business evolves, not a static number.
By following these steps, you can turn your Azure commitment into a strategic advantage – gaining cost savings without sacrificing agility.
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