Commit to long-term usage for massive cloud cost savings
Reserved Instances (RIs) and Savings Plans are commitment-based discounts offered by cloud providers. You commit to using specific resources (or a dollar amount of compute) for 1 or 3 years, and in return, you receive 40-65% discounts compared to pay-as-you-go pricing.
Think of it like buying in bulk or getting a membership discount: you promise to be a loyal customer, and the provider rewards you with lower rates.
Maximum flexibility: Pay only for what you use, scale up or down instantly, no commitments.
Full Price
Perfect for dev/test, unpredictable workloads, short-term projects
Commitment-based: Reserve specific VM sizes/types for 1 or 3 years upfront.
40-65% Discount
Ideal for stable production workloads with predictable capacity needs
Flexible commitment: Commit to $/hour of compute spend, works across VM families and regions.
40-65% Discount
Best of both: savings + flexibility for changing architectures
Key Point: Reservations are a billing discount, not separate resources. Your VMs run exactly the same—you just pay less for them.
| Comparison Factor | 1-Year | 3-Year |
|---|---|---|
| Discount | ~40-50% | ~60-72% |
| Commitment | 12 months | 36 months |
| Flexibility | ✓ Higher - exit/change sooner | ⚠ Lower - longer lock-in |
| Risk | Lower risk if needs change | Higher risk for unused capacity |
| Best For | New production workloads, testing commitment | Established apps with stable usage |
| Total Savings (example) | $100K → $55K = $45K saved | $300K → $100K = $200K saved |
This is a hypothetical, illustrative example for teaching purposes, not an actual case study.
You have 20 Standard_D8s_v3 VMs running SQL databases 24/7 in East US. These are core production workloads that will definitely run for the next 3 years.
| 20 × Standard_D8s_v3 VMs | $0.384/hour each |
| Hourly cost: 20 VMs × $0.384 | $7.68/hour |
| Monthly cost: $7.68 × 730 hours | $5,606/month |
| Annual Pay-As-You-Go Cost: | $67,274/year |
Discount: 49% off
Cost: $34,310/year
Savings: $32,964/year
Lower risk: If you migrate off SQL VMs to managed PaaS within a year, you're only committed for 12 months
Discount: 72% off
Cost: $18,837/year
Savings: $48,437/year
Maximum savings: Over 3 years, save $145K. If these are truly stable workloads, this is "free money"
| Pay-As-You-Go (3 years): | $201,822 |
| 1-Year RI × 3 renewals: | ~$102,930 |
| 3-Year RI (single commitment): | $56,511 |
| Total 3-Year Savings: | $145,311 |
Decision Rule: If you're confident these VMs will run continuously for 3 years, the 3-year RI is a no-brainer. If there's any chance of architecture changes (e.g., migrating to Azure SQL Managed Instance), start with 1-year RI to test the waters.
| Feature | Reserved Instances | Savings Plans |
|---|---|---|
| Commitment Type | Specific VM size + region | $/hour of compute spend |
| Flexibility | ⚠ Lower - tied to specific SKU | ✓ Higher - works across VM families |
| Discount | Up to 72% | Up to 65% |
| Region Flexibility | ✗ Locked to specific region | ✓ Works across regions |
| Instance Size Flexibility | ⚠ Limited (within instance family) | ✓ Full flexibility |
| Best For | Predictable, unchanging workloads | Dynamic architectures, multi-region apps |
| Example Use Case | 20 SQL VMs in East US, same SKU for years | Apps that might migrate D-series → E-series or change regions |
Azure provides reservation utilization reports in Cost Management. Monitor these monthly:
Pro Tip: Set up Azure Monitor alerts when utilization drops below 80% for 7 days. This indicates VM shutdowns, decommissions, or rightsizing opportunities.
(Disclosure: Turbo360 is one of this site's supporting partners—see the homepage. Treat these figures as illustrative, not independently verified.)
Don't commit 100% of capacity immediately:
Why? Leaves headroom for unexpected changes and avoids over-committing to resources you might not need.
Azure allows reservations to apply across different VM sizes within the same family:
Set calendar reminders 60 days before reservation expiration:
"Let's reserve 100% of our VMs!" Then you rightsize and have wasted reservations.
Solution: Reserve 70-80% of predictable baseline
For fault-tolerant workloads (batch, testing), Spot VMs are 60-90% off—better than RIs.
Solution: Hybrid approach: RIs for stable, Spot for flexible
Reserved for East US, but VMs run in West US. Reservation sits unused.
Solution: Match reservation region to actual workload region
Reservations work for Azure SQL Database, Cosmos DB, App Services too—not just VMs!
Solution: Review ALL Azure services for reservation opportunities
You buy reservations but never calculate actual savings realized.
Solution: Monthly reports comparing actual vs. PAYG costs
"We'll buy RIs after optimizing first." You lose months of potential savings.
Solution: Reserve known stable workloads NOW, optimize later
Reservations are the easiest 40-65% win in cloud cost optimization:
Action Item: Run an Azure Advisor report TODAY. It will recommend specific reservations based on your usage. Present the savings to your manager, get approval, and your Azure bill usually reflects the 40-65% savings on stable workloads within a billing cycle.
Compare pay-as-you-go vs reserved pricing and see your savings potential
Continue your learning journey