Saving money is a common goal for individuals and businesses alike, whether it’s in everyday grocery shopping or managing cloud expenses.
Fortunately, Azure offers a range of tools and best practices to help you cost and size your resources efficiently within the cloud environment.
One of these tools is the Azure Savings Plan for Compute. It was introduced in October 2022 and has proven to be a valuable asset for cost savings. In this post, we’ll delve into the benefits of the Azure Savings Plan for Compute, explore its significance as a cost-saving solution, and highlight any potential issues you should be aware of when using it.
What is Azure Savings Plan for Compute?
The Azure Savings Plan for Compute is a new pricing plan that grants eligible customers reduced prices on select Azure compute services in exchange for a commitment to spend a specified hourly amount. The plan offers a flexible and hassle-free way to save up to 65% on compute service costs compared to pay-as-you-go prices and can be applied over a one-year or three-year period.
Unlike reservations, Savings Plans offer a greater level of flexibility when applied to relevant Azure services. However, to avoid any wastage of resources, it’s crucial to ensure that the Savings Plans are assigned correctly.
If you’re a Microsoft Customer Agreement (MCA) or Cloud Solution Provider (CSP) customer, you’ll notice that the prices for savings plans are showcased in US dollars. However, customers with Enterprise Agreements (EA) will see the plans listed in their local currency.
Furthermore, you can choose to pay the total commitment amount upfront or monthly with no additional fees. Unlike Azure Reservations, the savings plan commitment can be applied across multiple Azure regions.
What services are eligible in Azure Savings Plan for Compute?
The Azure Savings Plan for Compute covers compute services across all Azure regions, enabling you to benefit from discounts on the following services:
- Azure Virtual Machines
- Azure App Service ((Premium v3 only)
- Azure Dedicated Host
- Azure Container Instances
- Azure Functions Premium plan
Purchasing a savings plan is a cost-effective solution if you have consistent compute spending across multiple regions as it immediately qualifies your compute usage for the discount, reducing your costs.
How does Azure Savings Plan work?
Under the Azure Savings Plan, the user agrees to spend a specific hourly amount, let’s say $5, which is applied towards the cost of individual Virtual Machines (VMs) on Azure. As the VMs consume the committed amount, the Savings Plan discount is applied to reduce the cost of the service. However, once the committed amount is fully consumed, the remaining cost is charged at the Pay-As-You-Go prices.
To maximize savings, the Savings Plan coverage is applied first to the most expensive resources and then to smaller units. Any unused commitment cost in an hour is considered a wasted cost. Microsoft has now incorporated this model into their cloud commitment offering with a significant enhancement – for a limited time, users can convert their existing Reservations into the new Savings Plan.
Azure Reservations vs Azure Savings Plans for Compute
Azure Reservations or Reserved Instances are a convenient way of reducing the costs of Azure compute-based services. By committing to a specific hourly payment for 1 or 3 years, you can get a discounted rate for the compute services covered by the reservation, as compared to the pay-as-you-go pricing model.
Eligible services for Azure Reservations include Azure Virtual Machines, Azure App Services (only Premium v3), Azure Functions Premium plan, Azure Container Instances, and Azure Dedicated Host. Additionally, these reservations can cover all your subscriptions and regions.
Azure Savings Plans for Compute offer greater scope and flexibility than Azure Reserved Instances. By purchasing a savings plan, you can obtain discounts on any relevant compute service across all Azure regions.
While the cost savings with Reserved Instances are greater than those with Savings Plans for Compute, the latter offers more flexibility to balance out the cost savings.
Azure Savings Plan for Compute Benefits
Azure Savings Plans provide customers with the flexibility to commit to a set hourly spend on selected Azure compute services. On the other hand, Azure Reserved Instances require customers to commit to a specific virtual machine.
With Azure Savings Plans, customers can save up to 65% compared to pay-as-you-go prices, resulting in significant cost savings for eligible customers.
- Payment options:
Azure Savings Plans offer customers the choice to pay the total commitment amount upfront or monthly at no extra cost, providing greater payment flexibility.
- Regional scope:
Customers can apply their Azure Savings Plan commitments across multiple Azure regions, making it easier to manage costs across a multi-region deployment. In contrast, Azure Reserved Instances can only be applied to a specific region.
Azure Reserved Instances Benefits
- Resource Allocation:
Azure Reserved Instances provide customers with the ability to reserve specific virtual machines, which allows for better control and cost predictability.
- Cost Stability:
Azure Reserved Instances offer a fixed cost model, which can be beneficial for customers with consistent workloads that require long-term resource commitments.
- Upfront Payment:
With the option to pay upfront, Azure Reserved Instances can help customers save money over the long-term, especially if they have sustained resource needs.
- Capacity Management:
Azure Reserved Instances can help customers in managing their resource utilization by providing guaranteed capacity for specific virtual machines, which can help with capacity planning and allocation.
When it comes to cost savings in Azure, there are two main options: Azure Reserved Instances and Savings Plan. The choice between them depends on several factors such as the length of time your Azure resources will remain unchanged, which option provides the highest discount, and the penalties or trade-offs involved in cancellations. In general, if you have stable compute resources, you should choose Azure Reserved Instances, and if you have dynamic compute resources with a steady spend, you should choose Azure Savings Plan. However, it may be beneficial to use both options to ensure maximum coverage of your Azure environment. Additionally, you should evaluate your specific situation to determine the best cost management lever to use.
Both Azure Reserved Instances and Azure Savings Plans offer cost-saving options for customers who commit to using Azure services for a certain period of time. In either case, Microsoft’s Azure Advisor can provide recommendations on how to achieve cost savings.
As a Microsoft Solutions Partner, Softlanding has extensive technical expertise in Azure and develops cloud technology for various clients. If your organization seeks to leverage Azure and its numerous benefits, do not hesitate to reach out to us.