Reserved Instances & Savings Plans
Introduction – Why RIs and Savings Plans Matter
Azure’s pay-as-you-go pricing can quickly drive your cloud costs sky-high if left unchecked.
Microsoft promotes Reserved Instances (RIs) and Savings Plans as effective ways to control spending. These discount programs do offer substantial savings on Azure compute costs, but they’re not a one-size-fits-all solution.
Without careful planning, RIs and Savings Plans can introduce rigidity and hidden risks that leave money on the table.
This guide breaks down how each model works, how much you can really save, and savvy negotiation strategies to maximize flexibility and cost efficiency.
The goal: help you benefit from Azure’s discounts on your terms, not just Microsoft’s.
Read our comprehensive guide to Negotiating Azure & Cloud Spend Commitments.
How Reserved Instances Work
Azure Reserved Instances are essentially volume discounts in exchange for commitment. You agree to use a specific virtual machine (VM) or other resource at a certain capacity for a fixed term (typically one or three years), and Microsoft significantly lowers the rate for that resource.
Discounts can be up to 70% off the pay-as-you-go price, making RIs ideal for steady-state workloads that run continuously (think production servers or databases that are always on).
You can choose to pay upfront or monthly, but either way you’re locked into paying for that resource over the term.
The trade-off for those hefty savings is reduced flexibility. A traditional RI is tied to a specific VM size, region, and operating system. If your needs change – say you want to move the workload to a different region or switch to a newer VM family – a standard RI won’t automatically follow.
Unused reserved capacity is essentially wasted spend (often called “shelfware” when a prepaid asset sits unused). Azure does provide some built-in flexibility: you can exchange RIs for a different RI (for example, trade an unused reserved VM for another of equal value) or refund a reservation (cancel it) up to certain limits.
However, these options may be limited (e.g. refunds capped at $50,000 per year and a 12% early termination fee by default).
For large enterprises, it’s wise to negotiate enhanced exchange or cancellation terms when making big RI commitments, so you’re not completely handcuffed if business needs shift.
In summary, Reserved Instances deliver maximum savings for predictable workloads, but you assume the risk of that commitment. If the workload or usage pattern doesn’t last the full term, the financial benefit of the RI is lost.
The key is to match RIs to workloads with proven, steady usage where you’re highly confident the resources will be utilized continuously.
Avoid unexpected costs, Preventing Azure Overruns: Negotiating Caps and Flexibility.
How Savings Plans Work
Azure Savings Plans are a newer, more flexible discount model designed to accommodate changing usage patterns.
Instead of reserving specific resources, you commit to spend a fixed dollar amount per hour on Azure compute services for one or three years.
In return, Azure applies discounted rates to any usage that falls under your hourly commitment across a broad range of services.
This can include VMs of any size in any region, Azure container instances, Azure Functions, and other compute options under the plan’s umbrella.
Think of a Savings Plan as a budget you promise to spend every hour. For example, you might commit to $100 of Azure compute usage per hour.
Whether that $100 is spent on 10 small VMs, one big VM, or a mix of VMs and container apps doesn’t matter – as long as you use up to $100 in that hour, you get the Savings Plan discounted rate on that usage.
If you use more than $100, the overage is charged at normal rates (or covered by another Savings Plan or RI if you have them).
If you use less than $100 in a given hour, you still pay the full $100 for that hour you pay for the commitment, not actual consumption so any unused commitment is wasted for that hour. However, the flexibility means it’s easier to fully utilize your commitment across different workloads over time.
Savings Plan discounts are slightly smaller than RI discounts, reflecting that flexibility. You might save on the order of 20–50% versus pay-as-you-go (exact percentages vary by service), whereas RIs could save more (up to ~70%) on a specific VM.
Still, many organizations gladly accept a somewhat lower discount in exchange for the ability to shift usage around. If one project’s VMs get shut down, your other workloads can still make use of the committed spend. There’s less risk of having prepaid capacity sitting idle.
One important consideration: Azure Savings Plans cannot be cancelled or adjusted mid-term. Once you commit (whether for one year or three years), you’re on the hook for that hourly spend for the entire term.
You can’t reduce or undo a Savings Plan if your cloud strategy changes (short of negotiating a special exception with Microsoft, which is rare). This makes it crucial to choose a commit amount you’re confident you can consistently use.
If unsure, lean toward a smaller commitment or a shorter duration; you can always add more later if needed. The flexibility of Savings Plans is powerful, but it still requires careful forecasting – overcommitting means paying for unused capacity with no recourse.
Comparing Reserved Instances vs Savings Plans
Both RIs and Savings Plans can cut your Azure costs, but they have different strengths. Reserved Instances offer deeper discounts but with a rigid scope, while Savings Plans cover a broader range of usage with more wiggle room.
Here’s a side-by-side comparison of key factors:
| Factor | Reserved Instance | Savings Plan |
|---|---|---|
| Commitment Term | 1–3 years (fixed resource commitment) | 1–3 years (fixed spend commitment per hour) |
| Flexibility | Low – tied to specific VM size/region (some exchange possible) | High – applies across services, VM types, and regions |
| Discount Potential | High – often 40–70% off PAYG rates | Moderate – typically a bit less than RI savings (e.g. 20–50% off) |
| Risk of Waste | Higher – unused reserved VM = sunk cost (“shelfware”) | Lower – commitment can cover different workloads (but unused commitment still wasted) |
When to use which? If you have a highly stable workload (predictable servers running 24/7), a Reserved Instance yields the biggest bang for your buck, as long as you’re certain you’ll use it fully.
For more dynamic or uncertain environments, a Savings Plan provides peace of mind that you’ll get discounts across your entire footprint, even if individual resources change.
In practice, many companies use a mix: RIs for the absolutely steady core usage and a Savings Plan to cover everything else. The combination can maximize savings while safeguarding you from the rigidity of too many RIs.
Negotiation Tactics
When entering an Azure agreement or true-up negotiation, don’t just accept Microsoft’s default offer on RIs and Savings Plans. Use these tactics to secure better terms and flexibility:
- Push for RI exchange rights. By default, Azure RIs can be exchanged or refunded only within limits. In negotiations, ask for more liberal exchange or cancellation terms if you plan a big RI purchase. For example, negotiate the right to swap RIs for different VM families or regions as your needs evolve, or to cancel beyond the standard cap without penalty. This reduces lock-in risk significantly. Microsoft may be open to this, especially if it means a larger upfront commitment from you. It never hurts to ask for custom flexibility beyond the out-of-the-box policy.
- Negotiate rollover for underuse. A Savings Plan commits you to a fixed spend. Try to include a rollover clause so that if you underconsume in one period (say one year), the unused value can roll into the next year rather than being lost. Microsoft doesn’t normally offer this in writing, but savvy customers sometimes get usage credit adjustments if they under-use a commitment. At minimum, raise the concern: “What happens if we don’t utilize 100% of our commitment?” and see if you can get a safety net negotiated (even if it’s in the form of a one-time credit or an extended term).
- Bundle commitments with EA renewal. If you’re renewing or signing an Enterprise Agreement (EA), time your RI/Savings Plan purchases with that negotiation. Committing to Azure spend via RIs/Savings Plans at the same time as an EA can give you extra leverage. Microsoft’s sales reps have quotas and incentives around Azure consumption commitments – use that to your advantage. For example, you might say you’re willing to buy $X of RIs or a Savings Plan if Microsoft throws in an extra discount on Azure services or offers a larger overall EA discount. Bundling commitments can lead to better rates or credits as part of the larger deal.
- Consider hybrid commitment structures. Microsoft often promotes a single type of commitment, but you can propose a blend instead. For instance, commit a portion of your usage as RIs (to get the max savings on known steady workloads) and another portion as a Savings Plan (to cover variable needs). This hybrid approach can be formal or informal: you might not have a single “hybrid” contract, but you may internally decide to allocate a budget to both RIs and Savings Plans. In negotiations, discuss your plan to use both and see if Microsoft will provide a custom discount or flexibility, knowing you intend a mix. The key is not putting all your eggs in one basket – maintain some agility while still locking in savings where it makes sense.
Checklist – Keys to Maximizing Azure Discounts
Before signing on the dotted line for any Azure discount program, run through this checklist to ensure you’re getting the best deal without unwanted surprises:
- ✓ Assess historic usage before committing. Analyze your Azure usage patterns over the past 6–12 months. Identify the baseline that’s truly steady vs. peaks and experiments. Commit only to what you’re confident about, based on data.
- ✓ Balance RIs for stable workloads with Savings Plans for variable workloads. Use RIs where you have consistent 24/7 needs, and cover more unpredictable usage with a flexible Savings Plan. This blended strategy prevents overcommitting in either model.
- ✓ Negotiate exchange and rollover terms. Don’t be shy about asking Microsoft for flexibility. Ensure you have options if you need to swap reserved resources or if your actual usage falls short of your commitment.
- ✓ Avoid overcommitting – Microsoft’s forecast is often inflated. Treat Microsoft’s consumption forecasts and Azure Advisor recommendations as a starting point, not gospel. They may assume growth or steady usage that won’t pan out. It’s safer to slightly under-commit and potentially add more later than to over-commit and pay for ghost resources.
- ✓ Bundle discount commitments with EA negotiations for better rates. Leverage big-picture negotiations. If an Enterprise Agreement renewal is on the horizon, align your Azure savings commitments with it to squeeze out extra concessions (like additional discounts or credits).
Hidden Risks to Watch
Even well-structured deals can have pitfalls. Be aware of these hidden risks when using RIs and Savings Plans:
- “Shelfware” RIs when workloads shift: An RI can turn into useless shelfware if the project it was meant for moves off Azure or is redesigned (for example, moving to PaaS services or to a different region). Mitigate this by reserving only truly essential, persistent resources, and by negotiating flexibility to reassign RIs where possible.
- Vendor bias in forecasts and recommendations: Microsoft wants you to commit as much as possible. The Azure Advisor tool might recommend purchasing RIs/Savings Plans based on optimistic assumptions of future usage. Always apply your own skepticism and scenario planning. Likewise, be cautious if Microsoft’s reps encourage a very large commitment – ensure it aligns with your business plans, not just their sales targets.
- Currency and regional price fluctuations: For multi-year commitments, especially if your company operates internationally, foreign exchange rates and regional pricing changes can impact your costs. An Azure Savings Plan or RI is priced in a specific currency and region. If you budget in USD but operate services in Europe or Asia, currency swings over three years could erode some savings or make your commitment less favorable. Additionally, Azure occasionally adjusts regional prices; if you locked in a rate in one region and Microsoft drops prices elsewhere, you might feel stuck. To manage this, consider deals in your primary currency or negotiate clauses for price protection if that’s a major concern.
FAQs
What’s the better choice: RI or Savings Plan?
There’s no universal winner – it depends on your situation. RIs typically give a bigger discount but are inflexible; Savings Plans offer broader flexibility with a bit less savings. If you have a very stable, long-term workload, an RI will maximize savings for that specific need. If your usage fluctuates or you want simplicity, a Savings Plan covers you more gracefully. Many organizations use a combination: RIs for the absolutely steady workloads and a Savings Plan to catch the rest. Rather than either/or, ask “which parts of our environment suit RIs, and which suit a Savings Plan?”
Can we negotiate custom RI flexibility terms?
Often, yes – especially if you’re a large enterprise making a big commitment. While Azure has standard policies (RI exchanges and limited cancellations), Microsoft has been known to grant custom concessions for strategic deals. This could include the right to exchange RIs beyond the usual rules, larger refund allowances, or even an agreement that allows you to downsize an RI commitment if certain conditions are met. Work with your Microsoft account team to put any special terms in writing. Even if you can’t get a formal clause for everything, raising the concern sets the expectation that you will need some leeway if things change. At the very least, know the default rules inside out so you’re not caught off guard – and push for improvements where you can.
How do we mix and match RIs and Savings Plans?
The best approach is to map your workloads. Identify a stable baseline (say 60–80% of your average usage) – that portion could be covered with RIs or a Savings Plan, depending on how homogenous it is. Then identify the spiky or uncertain portion (the remaining 20–40%) – that might be left on pay-as-you-go or covered by a smaller Savings Plan. For example, you might reserve specific database VMs with RIs for three years, because those aren’t going anywhere, but use a one-year Savings Plan to cover various VMs in a dev/test environment that might scale up or down. Microsoft’s discount programs aren’t mutually exclusive, and in fact, using them together can yield a better outcome. Just be careful not to “double commit” the same usage to both an RI and a Savings Plan – plan out which hours or resources will fall under which commitment.
Do discounts stack with EA commitments?
Enterprise Agreement (EA) discounts and Azure RIs/Savings Plans are different levers, but they complement each other. An EA Azure consumption commitment might give you, for example, a 5-15% overall discount on pay-as-you-go rates in your contract. RIs and Savings Plans, on the other hand, give you much larger discounts on specific usage. In practice, when you use an RI or Savings Plan, that usage is billed at its special low rate (so the EA’s general discount doesn’t really apply on that portion – you already got a bigger discount). However, any usage beyond your RIs/SP still benefits from your EA-negotiated discount. Also, the money you pre-pay for RIs or Savings Plans can often count toward fulfilling your EA monetary commitment. Bottom line: Yes, you can and should use both an EA and RIs/Savings Plans. Use the EA to secure a baseline discount and then layer RIs/SPs on top for maximum savings on heavy usage. Just avoid the mistake of calculating both discounts on the same dollars as if they “stack” – only one applies to a given unit of usage, but having an EA ensures even your non-reserved usage isn’t full price.
What happens if we overcommit to Savings Plans?
Overcommitting – e.g., you purchased a Savings Plan expecting $100/hour of usage but end up only using $70/hour – means you’re paying for $30/hour of nothing. Those dollars are committed and cannot be recovered for the term of the plan. There is no built-in rollover or refund for underuse (unless you negotiated something atypical). Essentially, the unused commitment is lost value. If you realize mid-term that you overshot, you should still maximize what you’re paying for: try to find additional workloads to run on Azure that can soak up the spare capacity you’re paying for. Perhaps there are on-premises jobs that could be moved to Azure, or you run certain tasks more frequently. It’s not ideal, but squeezing some utility out of an overcommit is better than letting it all go to waste. And take it as a lesson learned – when renewal time comes, adjust your commitment to a more realistic level. Microsoft may also be amenable to working with you quietly (e.g., giving a bit of consumption credit) if you were way off, but don’t count on it. It’s far better to start conservatively and increase commitment later than to go too high.
Five Expert Recommendations
- Match RIs only to workloads with proven stability. Only use Reserved Instances for VMs and services you’re nearly 100% sure will run full-time for the duration. If there’s any doubt about a workload’s longevity or size, don’t lock it in with an RI.
- Use Savings Plans to hedge against uncertainty. For everything else that isn’t as predictable, use a Savings Plan (or leave as PAYG). The Savings Plan will give you broad coverage and flexibility, ensuring you still save on that usage without betting on specific resources.
- Negotiate exchange and rollover rights upfront. Don’t wait until after signing to discover you’re stuck. In the contract phase, press Microsoft for flexibility – the ability to swap reserved resources, and some accommodation if you can’t use 100% of a commit. You may not get everything you ask, but you certainly won’t get it if you never ask.
- Align commitments with EA renewals for maximum leverage. The best discounts often go to those who bundle big commitments together. Plan your Azure RIs/Savings Plan purchases to coincide with your Enterprise Agreement negotiation. Microsoft will be more generous when they see a holistic, strategic commitment (and when they’re trying to close a large deal with your organization).
- Always challenge Microsoft’s consumption forecast — it’s rarely in your favor. Treat any usage projections provided by Microsoft as optimistic. Do your own math and scenario analysis. It’s in Microsoft’s interest to have you commit high. Your job is to commit smart. If their forecast says you’ll use $10M of Azure next year, consider what happens if it’s actually $8M. Structure your deals so that if reality comes in lower, you’re not stuck overpaying. In negotiations, don’t be afraid to counter with a lower commitment backed by your data. Microsoft would rather have you in a deal (even a smaller one) than not at all, despite the scare tactics they might use about “limited-time savings”. Be firm and base commitments on your business’s needs and growth, not just vendor hype.
By taking a strategic, skeptical approach to Azure Reserved Instances and Savings Plans, you can unlock significant cloud savings while keeping flexibility for your organization.
The key is to stay in the driver’s seat – use these tools to your advantage, negotiate hard for customer-friendly terms, and never lose sight of your own usage data and cloud roadmap. Azure’s discounts are powerful, but only when aligned to your strategy.
With the right mix and savvy planning, you’ll tame your Azure costs without getting trapped in a bad deal.
Read about our Microsoft Negotiation Services
