Azure Reserved Instances vs Savings Plans: Which Commitment Model Saves More?

Azure Reserved Instances vs Savings Plans: Which Commitment Model Saves More?

Why Commitment Models Matter in Azure Cost Optimization

Cloud spending in Azure continues to climb rapidly – often outpacing IT budgets.
Read our ultimate guide to optimizing Azure commitments and spend.

As organizations expand their cloud footprints, finding ways to reduce costs is paramount. This is where Azure’s commitment models come into play.

By committing to use (or spend on) Azure resources for a specified period, enterprises can secure significant discounts compared to pay-as-you-go pricing.

In practice, this means choosing between Azure Reserved Instances (RIs) and Azure Savings Plans, two discount programs that can potentially save companies 50-70% or more on compute costs.

The choice between these models is not trivial; it has a major financial impact on cloud ROI. Selecting the right commitment model (or the right mix of both) can mean the difference between maximizing savings and leaving money on the table.

It’s crucial to understand how each model works and where each shines, so you can optimize costs while avoiding costly missteps.

What Are Azure Reserved Instances (RIs)?

Azure Reserved Instances are pre-paid commitments to use specific Azure resources at a discounted rate for a long term (typically one or three years).

In essence, an RI means you agree to consume a certain compute resource – for example, a VM of a particular size in a specific region – for the duration of the term.

In return, Microsoft heavily discounts the hourly rate for that resource. The savings can be substantial: Azure RIs often advertise up to 72% off versus standard pay-as-you-go rates (and even up to 80% when combined with Azure Hybrid Benefit for Windows Server licenses).

This makes RIs one of the most powerful cost-saving tools for predictable, steady workloads.

Key characteristics of Azure RIs include:

• Term lengths and payment: You can purchase RIs for a 1-year or 3-year term. Longer commitments yield higher discounts. You may pay the entire amount upfront or opt for monthly payments (monthly payments spread the cost but typically offer the same overall discount percentage in Azure’s case).
• Scope and flexibility: RIs can be scoped to a single subscription or shared across an entire enrollment (multiple subscriptions) to maximize utilization. However, the reservation is tied to a specific region and resource type (e.g., a VM series or database SKU). Azure offers instance size flexibility within a region for virtual machine reservations – meaning that if you reserve a specific VM size, the reservation discount can be applied to other VMs in the same instance family in that region, up to the equivalent footprint. Despite this, RIs are considered fairly rigid; you’re locked into the chosen instance or family in a region. If your architecture changes (e.g., different VM types or moving regions), the RI may not be fully applicable.
• “Use it or lose it”: A Reserved Instance offers a discounted rate for a specific amount of capacity on an hourly basis. If you don’t actually run the resource for some hours, that capacity (and money) is essentially wasted for those hours. For example, if you reserved 10 VMs but only eight are running, 2 VMs’ worth of reservation go unused at that time – overcommitting leads to sunk cost. When fully utilized, however, RIs yield the maximum savings per unit of resource.
• Capacity assurance: One side benefit – when you purchase an RI, Azure essentially guarantees that capacity for you. This means even if an Azure region faces capacity constraints, your reserved VMs can still be launched. This is important for critical workloads that need guaranteed compute availability.
• Modifying and cancelling: Traditionally, Azure allowed some flexibility to exchange or cancel reserved instances. You can adjust an RI (exchange it for a different one of equal or greater value) or cancel early with a fee (typically around a 12% penalty, with some annual limits). As of 2024, Azure has phased out exchanges for new reservations, making RIs a more true fixed commitment. You can still cancel an RI, but you will incur a penalty, and there are limits to the amount you can cancel in a year. This means one must plan RIs carefully, as they’re essentially a locked-in commitment once purchased.

In summary, Reserved Instances are best suited for stable, always-on workloads where you are confident in your long-term resource requirements.

When used correctly, they can deliver the highest savings. But their rigidity means you must be cautious about what and how much you reserve – any mismatch between your reserved capacity and actual usage can reduce or even negate the savings.

Read our Top 20 Practical Tips for Enterprises.

What Are Azure Savings Plans?

Azure Savings Plans are a newer, more flexible commitment model that focuses on spending rather than locking to a specific resource.

With a Savings Plan, you commit to spend a fixed dollar amount per hour on Azure compute services for a term of one or three years. In return, Azure applies a discounted rate to any eligible compute usage up to that hourly spend commitment.

In effect, you’re pre-paying for a certain level of usage (measured in $/hour of consumption), but you have freedom over which services or regions that usage comes from.

Microsoft touts Savings Plans as providing up to 65% off pay-as-you-go rates for compute, which is slightly lower than the maximum RI savings but still very significant.

Key characteristics of Azure Savings Plans include:

• Spend-based commitment: Instead of specifying a particular VM or resource, you might, for example, commit to spend $100/hour on Azure compute. If, in a given hour, your organization uses $100 worth of VM, container, or Azure Functions compute (all eligible services), the cost is covered by the plan at the discounted rates. If you use $110 in an hour, the $100 commitment is billed at the lower Savings Plan rate, and the excess $10 is charged at normal pay-go rates. If you only use $80 in one hour, you still pay $100 (you essentially forfeit the unused $20 of commitment for that hour). The billing is smoothed out monthly, but conceptually, you must use it or lose it each hour up to your commitment.
• Broader applicability: Savings Plans apply across many compute services and regions. They cover Azure Virtual Machines (IaaS VMs), Azure Dedicated Host, Azure App Service (the compute cost of App Service plans), Azure Functions Premium plan, Azure Container Instances, and more. The plan isn’t tied to a specific VM size or region – the discount can cover any mix of eligible services anywhere, automatically optimizing to provide the best benefit first. This makes Savings Plans ideal if you have multiple workloads or frequently change resource types.
• Term and payment: Like RIs, Savings Plans come in 1-year or 3-year terms, with the option to pay upfront or monthly. A 3-year plan with upfront payment yields the greatest total savings percentage. Once purchased, you cannot cancel or reduce a Savings Plan – it’s a commitment for the full term with no refunds. (You could always buy additional commitments if needed, but you can’t scale back the one you have, so planning the amount is critical.)
• No capacity guarantee: Unlike RIs, a Savings Plan is purely a billing construct – it doesn’t reserve any specific capacity in Azure. It will give you cost savings, but it does not guarantee VM availability. This usually isn’t an issue unless you’re in scenarios of constrained capacity, but it’s a difference to note for mission-critical planning.
• Complementary to RIs: Azure Savings Plans were introduced in 2022 and were initially seen as a potential replacement for RIs. In reality, Microsoft has kept both options. In fact, you can use them together: if you have some Reserved Instances and also a Savings Plan, Azure will always apply the most beneficial discount first. Typically, RI discounts (which are larger for a specific resource) apply before a Savings Plan does. Then the Savings Plan covers additional usage beyond the RIs up to its spend limit. This ensures you maximize savings if you use both.

In short, Savings Plans offer flexibility and simplicity. They are best suited for environments where workload patterns change over time or are spread across multiple services – situations where the rigid specificity of RIs would either be impractical or result in unused reservations.

The trade-off is that the maximum savings percentage is slightly lower than what a perfectly utilized RI could achieve, and you must carefully forecast your spend commitment to avoid underutilizing it.

However, for many, the flexibility means higher effective savings because the commitment can always be used for something, rather than potentially going to waste.

Key Differences Between Reserved Instances and Savings Plans

Both RIs and Savings Plans involve committing to Azure usage in exchange for discounts, but they differ in commitment type, flexibility, scope, and risk.

Below is a side-by-side comparison of their key differences:

In summary, Reserved Instances are resource-specific and potentially higher-discount, whereas Savings Plans are usage-flexible and easier to fully utilize across changing workloads.

RIs can save more on a per-resource basis, but Savings Plans can cover more scenarios dynamically, often resulting in better overall savings in a variable environment. The right choice depends on the nature of your workloads and your confidence in their consistency over time.

Cost Savings Potential – Which Model Saves More?

Ultimately, every enterprise wants to know: which option will save us more money, a Reserved Instance or a Savings Plan?

The answer is “it depends” on your workloads. Each model shines under different conditions:

• Reserved Instances deliver maximum savings for steady workloads. If you have a workload that runs 24/7 at a consistent scale – for example, a production database or a fleet of application servers that you know will be needed long-term – then purchasing RIs for those resources will generally yield the highest possible discount. In these scenarios, you can often achieve the advertised 70% savings compared to pay-as-you-go. Every hour the resource runs, you’re getting that lower rate. As long as you size your RIs to match your actual usage, your cost on those resources will be drastically lower than on-demand pricing. For very long-lived systems, RIs essentially lock in a bulk rate that can save millions over the years.
• Savings Plans excel for variable or unpredictable usage. If your computing needs fluctuate or evolve, a Savings Plan can result in higher realized savings by ensuring that, regardless of how your usage shifts, you always utilize your discount commitment fully. Consider an example: one month you might run mostly DSv5-series VMs, the next month you shift some workload to a Kubernetes cluster using container instances, and later you scale down certain services. Tracking such changes with RIs would be complex, and you might end up with some RIs not being used at times. A Savings Plan doesn’t care which service or VM size you’re using – as long as some eligible compute is running, it will apply your discounted rates. Thus, in dynamic environments, a Savings Plan often yields a higher overall savings percentage of your spend because there is little wastage from unused reservations. The discount per unit might be a bit less than RIs, but if it’s always being applied to something, your cloud bill could end up lower than it would with poorly utilized RIs.
• Mixing both models can provide an optimal balance. Many large organizations employ a hybrid strategy: they purchase RIs for the known, steady-state base load, and then utilize a Savings Plan to cover the remainder of their variable or growing compute usage. This way, they capture the deepest discounts on the predictable core (via RIs) and still maintain flexibility for everything else (via the Savings Plan). For example, an online retailer might reserve capacity for a minimum number of web servers that run 24/7, but use a Savings Plan to handle scale-out traffic during seasonal peaks or to cover new services they launch. This combination approach maximizes savings while minimizing the risk of unused commitments.
• Scenario examples: To illustrate, imagine Company A runs an internal ERP system on 50 VMs that have run at constant capacity for years. They plan to keep this on Azure in the long term. Company A would save more by buying 3-year Reserved Instances for those 50 VMs, locking in the highest discount, because the usage of those VMs is a sure thing. On the other hand, Company B runs various data processing jobs that change month to month – some months are heavy on VMs, while others use Azure Functions. Their workload locations and types change frequently. Company B would likely benefit more from a Savings Plan of a certain amount per hour that covers their average usage. This ensures that, regardless of how they run their jobs, they receive a discounted rate and are not stuck with RIs for VM types they might not use next quarter. In practice, many companies are like Company C, with some stable workloads and some dynamic projects; they would benefit by applying a mix of both: reserving the stable part and using a savings plan for the rest.

In conclusion, neither model is strictly “cheaper” in all cases – it’s about choosing the right tool for the job. If you can confidently use a specific resource continuously, RIs will provide slightly greater discounts.

If you need flexibility, Savings Plans might save you more by covering all your usage without breakage. Evaluating your usage patterns carefully is key to determining which model (or what ratio of each) will yield the greatest ROI for your Azure environment.

Governance & Optimization Strategies

Getting the most out of Azure RIs and Savings Plans requires ongoing management.

Here are strategies to govern your commitments and continually optimize savings:

• Forecast accurately before committing: A commitment is only as good as your understanding of future usage. Leverage data from Azure Cost Management and Azure Advisor recommendations to see your past consumption patterns. Look for resources that run continuously or baseline usage that rarely falls below a certain level – those are prime candidates for RIs or a minimum Savings Plan amount. Involve both technical teams (to understand workload roadmaps) and finance/FinOps teams (to analyze cost data) when deciding on commitment levels. Conservative forecasting is wise if you expect changes – it’s better to slightly under-commit and add later than over-commit and pay for unused capacity.
• Monitor utilization and coverage: Once you’ve made commitments, set up monitoring to track their usage. For RIs, Azure provides metrics for RI utilization (% of the time your reservations are applied). If you see RIs that consistently have low utilization, investigate why – perhaps you have inadvertently shut down resources or shifted workloads. You may be able to mitigate the issue by launching other workloads that can utilize those RIs, or, if not, plan not to renew those reservations. For Savings Plans, track how much of your hourly commitment is actually being used on average. If you purchased a $100/hour plan but find your actual eligible spend is only $80/hour, that’s $20 going unused. Such insights could lead you to increase usage (deploy more workloads under that budget, if possible) or simply note to opt for a smaller plan next time. Regular reviews (monthly or quarterly) should be part of your cloud governance process.
• Leverage Azure Hybrid Benefit and licensing optimizations: Don’t forget that Azure commitment discounts and software licensing benefits can be combined for maximum savings. If you have existing Windows Server or SQL Server licenses with Software Assurance, Azure Hybrid Benefit (AHB) enables you to run those licenses in Azure without incurring the license portion of the VM cost. This can yield an additional ~30-50% savings on Windows VMs. Make sure to factor this in: for Windows workloads, apply your AHB before calculating RI or SP needs (since RIs/SPs will then only cover the reduced meter rate). Enterprises sometimes overlook this, resulting in effective overpayment. A best practice is to combine RIs or Savings Plans with Hybrid Benefit for maximum cost reduction – for example, a Windows VM with Hybrid Benefit and RI can be significantly cheaper compared to on-demand pricing.
• Stagger and diversify commitments: Rather than making a single, large commitment purchase for all your needs at once, consider spreading them out or layering different terms. For example, instead of committing 100% of a workload on 3-year RIs today, you might commit 50% on 3-year and 50% on 1-year, and renew the 1-year in a year. Staggering expiration dates mean you’ll have opportunities to adjust to new information or growth. It reduces the risk of all your commitments expiring at the same time (which could cause a budget spike if not renewed in time) and avoids being locked into one decision point. Diversification can also mean mixing some RIs with some Savings Plan, as discussed, to hedge bets. The cloud and your business needs will evolve – your commitment portfolio should have some flexibility built in.
• Governance policies and accountability: Establish clear policies for how your organization uses RIs and Savings Plans. For instance, decide centrally which team manages reservations and savings plans (often the FinOps or Cloud Center of Excellence team). They should enforce tagging or allocation so you know which business units are consuming the reserved capacity. Additionally, incorporate commitment planning into your cloud governance meetings or quarterly business reviews with product teams. By keeping commitments visible in your governance process, you ensure everyone is aware of their importance and you catch potential issues (like a project planning to drop a workload that has an RI) before they lead to wasted spend. Executive dashboards showing savings achieved through RIs/SPs can also help demonstrate the value of these strategies to stakeholders and keep the organization bought-in to proactive cost management.
• Use tooling for optimization: Azure provides tools (like Azure Advisor, cost analysis, and reservation utilization reports) to optimize commitments. Third-party cloud cost management platforms can also offer deeper insights or automation (some tools can automatically purchase or sell RIs in AWS; for Azure, third-party tools might recommend optimal mixes of RIs vs SPs). Consider using these to continuously right-size your commitments. Optimization isn’t a one-time set-and-forget task; it’s an ongoing process of tuning your committed coverage to your actual usage.

By following these governance practices, enterprises can significantly increase their savings and avoid the pitfalls of commitment mismanagement. The goal is to have the commitments working for you (reducing costs) without leading to surprises or waste.

Common Mistakes Enterprises Make

Even with good intentions, companies sometimes make mistakes in their approach to Azure RIs and Savings Plans.

Being aware of these common pitfalls can help you avoid them:

• Overcommitting to RIs without proper forecasting: One classic mistake is buying too many Reserved Instances (or too large a size) because the upfront discount looked attractive, only to find that actual usage was lower. Overcommitting results in paid-for capacity sitting idle. For example, reserving 100 VM instances when your usage ends up averaging 80 means 20 RIs worth of spend wasted. To avoid this, always base RI purchases on solid data and start smaller if uncertain. Remember that you can always scale up commitments later, but once you lock in an RI, that cash is spent regardless of usage. It’s better to slightly under-buy and have some usage on a pay-as-you-go plan than to over-buy and incur the cost of unused RIs.
• Treating Savings Plans as “set and forget”: The flexibility of Savings Plans can lull teams into complacency. Some assume that after purchasing a Savings Plan, they’re automatically optimizing costs, and they don’t need to actively manage it. In reality, you must continually review your Savings Plan utilization. If your organization’s cloud usage drops (say you optimized workloads or retired an application) and you don’t adjust your commitment, you could be paying for a higher hourly commitment than you need. Conversely, if your usage grows well beyond the commitment, you might be missing out on additional savings by not increasing the plan. Regularly revisit the question: “Is our Savings Plan commitment still the right amount given our current usage?” Don’t just buy it and ignore it for three years.
• Not aligning commitments with business cycles or changes: Enterprises often have seasonal or cyclical patterns, or they undertake cloud migrations and project rollouts that change resource usage. A common mistake is failing to align RI or SP commitments with these known patterns. For instance, if you know a certain legacy system will be decommissioned in six months, committing to a three-year reservation for it would be a significant oversight. Or if your business has a peak season where usage doubles for two months, you might under-commit and then overspend during that peak if you didn’t factor it in. Always incorporate business timelines (such as product launches, expansions, and end-of-life plans) into your commitment strategy. Timelines for projects should influence whether you choose a 1-year or 3-year term and how many resources to commit. Flexibility is limited once you make a purchase, so timing is crucial.
• Ignoring the Azure Hybrid Benefit in cost calculations: Some organizations calculate the value of RIs or Savings Plans, but overlook their existing licensing benefits. Azure Hybrid Benefit (for Windows, SQL Server, etc.) can greatly reduce the cost of running those services. If you ignore it, you might overestimate how much a Savings Plan or RI will save, or you might buy an RI for a more expensive meter that includes software when you could have applied for a license. For example, buying a reserved instance for a Windows VM without using Hybrid Benefit means you’re reserving (and paying for) the Windows license cost as well, which you might have received for free through your Software Assurance. The mistake is not maximizing these additional savings. The fix: Always use Hybrid Benefit where applicable before sizing your commitments, and consider that your effective rates might be lower (so a smaller monetary commitment may be needed). Integrating licensing strategy with cloud cost strategy prevents this costly oversight.

Being mindful of these mistakes and learning from others helps your enterprise refine its approach. Azure’s commitment options are powerful, but if misused, they can lead to unwelcome surprises. A disciplined, informed strategy will ensure you reap the savings without the headaches.

Strategic Recommendations for CIOs & Procurement Leaders

For IT executives and procurement officers looking to maximize ROI from Azure, here are strategic recommendations to guide your commitment planning:

• Use Reserved Instances for known, stable workloads: Analyze your portfolio to identify predictable, steady, and long-term workloads (e.g., core enterprise applications, databases, and baseline infrastructure that runs 24/7). These are ideal candidates for Reserved Instances, especially 3-year RIs, which yield the deepest savings. By locking in rates for resources you know you’ll use, you can achieve exceptional cost efficiency. Make RI purchasing decisions part of your annual IT planning for any “always on” services. This gives finance teams predictable expenditures and reduces on-demand cost volatility.
• Leverage Savings Plans for variable or growing needs: For areas of your environment that are variable, bursty, or subject to change, lean on Azure Savings Plans. This could include development/test environments, customer-facing apps with fluctuating traffic, or new initiatives where you’re unsure which services you’ll end up using most. A Savings Plan provides cost reduction across whatever path your teams take. It’s an excellent tool for future-proofing your discount – as your usage shifts, the savings follow. CIOs should view Savings Plans as a means to maintain flexibility in technology choices without compromising cost control.
• Blend both models for a balanced portfolio: In practice, most enterprises will benefit from a combination of RIs and Savings Plans. Establish a strategy for determining the percentage of your Azure spend to cover with long-term RIs versus the portion to cover with a flexible Savings Plan. This blend can be adjusted over time as you gain confidence in more workloads (shifting some from the “flexible” category into the “stable” category as they mature, for example). The goal is to achieve the highest savings rate on the portion of usage that is truly predictable, while using Savings Plans to ensure you’re not paying full price on the rest. Think of it like an investment portfolio: some fixed high-yield investments coupled with some flexible instruments. This also spreads risk – if a project using RIs is canceled, at least it was only part of your strategy, with the rest covered by the adaptable Savings Plan.
• Integrate Azure commitments into broader procurement and licensing strategy: Don’t view RIs and Savings Plans in isolation. They should be part of your holistic cloud procurement and Microsoft negotiations. For example, when negotiating an Enterprise Agreement (EA) or Azure consumption commitment with Microsoft, consider how your planned use of RIs/Savings Plans contributes to meeting those commitments. Microsoft may offer incentives or discounts based on Azure consumption – your use of RIs and Savings Plans can help achieve committed spend levels (since you’re pre-paying for usage). Also coordinate with your software licensing team: decisions on purchasing Software Assurance or license subscriptions affect your need for Azure Hybrid Benefit, which in turn affects cloud costs. From a governance perspective, treat cloud commit purchases with the same rigor as any large procurement – involve the procurement department in approvals, ensure you’re getting the best pricing (e.g., check if Microsoft is running any promotions or if pricing differs in portal vs. through a reseller), and have a clear internal policy for how and when the organization makes these commitments. This strategic alignment ensures you maximize value from all angles – unit cost reduction, enterprise discounts, and efficient use of existing licenses.
• Continuously educate and revisit strategy: The cloud landscape is constantly evolving, and Microsoft may adjust its offerings or introduce new cost-saving options. (For instance, Azure might extend Savings Plans to other services or bring in new reservation types.) CIOs and FinOps leaders should stay informed about Azure updates and periodically revisit their commitment strategy. What worked two years ago might not be optimal after an acquisition or a major shift to serverless computing, for example. Build a culture that prioritizes ongoing cloud cost optimization. Encourage cross-functional discussions: cloud architects should provide input on technical roadmaps, finance should provide input on budget goals, and procurement should provide input on contract lifecycles. This ensures your Azure commitment approach remains aligned with organizational objectives and market options.

By following these recommendations, CIOs and procurement leaders can confidently navigate the decision between RI and the Savings Plan.

The result should be a well-thought-out commitment plan that maximizes savings, preserves flexibility, and aligns with the company’s financial and technical strategy.

FAQ – Azure Reserved Instances vs Savings Plans

Q: Which model saves more overall – RIs or Savings Plans?
A: In a vacuum, Azure Reserved Instances can offer a higher discount percentage (up to 72% off, versus up to 65% off with Savings Plans). So if you purely compare one resource under perfect usage, an RI yields more savings. However, “overall” savings depend on your situation. If your workload perfectly fits an RI (full utilization), RIs will save more on that workload. But if your usage is irregular or changes, a Savings Plan could actually result in more net savings by covering all usage without gaps. Many enterprises find that, beyond a certain level of scale, a combination yields the best overall savings – utilize RIs where they’ll be fully utilized, and Savings Plans to cover everything else at a favorable discount. So, neither is universally “cheaper”; it’s about the fit. When well-matched, RIs maximize savings on specific, predictable workloads, and Savings Plans maximize savings on aggregated, flexible workloads. The best strategy might be to calculate potential savings for both scenarios with your top workloads and decide accordingly.

Q: Can I switch from RIs to Savings Plans mid-term?
A: There is no direct “conversion” of a Reserved Instance into a Savings Plan. If you already purchased RIs, you can certainly also buy a Savings Plan to cover additional usage, but the RI you bought remains in effect. Azure’s policy does allow you to cancel RIs (permanently return them) before the term ends, but with a penalty (around a 12% fee) and with some annual limits on how much you can cancel. So, if you realized you made a mistake and would prefer a Savings Plan, you could cancel the RI (pay the fee) and then purchase a Savings Plan, but that incurs extra cost. Also note that as of 2024, Azure has removed the option to exchange RIs for other RIs, thereby reducing flexibility. The best approach is to plan up front: you might start with a smaller RI commitment and use Savings Plans, then increase RIs later if appropriate. During an active term, though, you can’t simply swap an RI for a Savings Plan. You can have both running concurrently – Azure will apply the RI discount first, then the Savings Plan to additional usage. Over time, as RIs expire, you can decide to replace some of that capacity with Savings Plans if that suits your updated strategy.

Q: Are Savings Plans replacing RIs in Azure?
A: No – at least not for the foreseeable future. Microsoft has been clear that Azure Savings Plans are a complementary offering, not a direct replacement for Azure Reservations. Both options continue to exist side by side. In fact, each has distinct advantages: RIs still generally offer the biggest discounts and include offerings beyond just VMs (such as reserved capacity for databases). At the same time, Savings Plans provide flexibility across services. Microsoft’s recent changes (like removing RI exchanges) suggest they are nudging users to consider the more flexible Savings Plans for certain scenarios. Still, there is no announcement of RIs being phased out. Many customers still prefer RIs for stable workloads. So, expect both to remain available. It’s wise to be familiar with both, as an optimal cost strategy may involve using them in tandem.

Q: How do I forecast the right level of commitments?
A: Forecasting for RIs and Savings Plans involves analyzing your usage patterns and anticipating future needs. Start with historical data: use Azure Cost Management and Advisor recommendations, which often suggest how much you could save with specific RIs or Savings Plans based on past usage. For RIs, identify specific resources that are on 24/7 and their sizes – those are candidates to reserve. For Savings Plans, look at your aggregate hourly spend on compute over the last several months: if you consistently spend, say, $50-$60/hour on eligible compute, you might commit, for example, to $50/hour (slightly under the peak to be safe). Also consider growth trends – if you expect your compute usage to increase 20% this year, factor that in (maybe you commit a bit less now and plan to top up later, or commit closer to current levels knowing you’ll exceed it later, but at least you locked in savings for the base usage). Engage application owners and planners – if a team plans to launch a new service or do a big migration to Azure next quarter, include that expected usage in your forecast. Conversely, if some workload is being retired or moved off Azure, adjust down. Essentially, treat forecasting like a budgeting exercise: use data, account for upcoming changes, and err on the side of caution if unsure (you can always buy another Savings Plan or more RIs later, but you can’t reduce an existing commitment). Finally, revisit your forecasts regularly. If six months into a commitment, your actual usage is very different from assumptions, you may need to adjust your strategy for future purchases.

Q: Should enterprises always mix RIs and Savings Plans?
A: Not always, but in many cases, a mix is beneficial. The right approach depends on the nature of your workloads. Some companies with extremely steady-state environments might find it simplest and most cost-effective to use RIs for everything (especially if all workloads are predictable and they want the absolute maximum discount on each). Other companies that are cloud-native and constantly shifting workloads might favor Savings Plans for all their compute to keep things flexible. However, most enterprises have a blend of workload types. Thus, mixing RIs and Savings Plans often provides the best of both worlds: certainty and deep savings on the known steady workloads, and flexibility and broad coverage on the rest. By mixing, you also reduce reliance on a single strategy – if you misjudge one area, the other might compensate. It also gives you more levers to pull: you could increase your Savings Plan commitment when expanding into new services, or buy some short-term 1-year RIs for a temporary project that needs consistent resources, for example. The key is to evaluate your own environment. There’s no one-size-fits-all approach, but a diversified strategy is a proven method for cloud cost optimization. Always base the decision on data and business requirements. If in doubt, start with a combination of both and adjust as you gain insight into which model better fits your consumption patterns.

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