Managing cloud costs in Microsoft Azure is important for companies of all sizes.

As your cloud usage grows, so does your cloud spending bill – unless you plan ahead.

Whilst Pay-As-You-Go pricing offers fantastic flexibility, many organisations are looking for more cost-effective ways to manage their cloud computing resources.

So here we’re looking at Azure Savings Plans and Reserved Instances — two powerful features in Microsoft’s cost optimisation toolkit. Both promise significant savings on your Azure spending, but they work quite differently.

Below, we’ll explore both options in detail: how they work, when to use them, and how to choose between them.

How Azure Savings Plans work

Azure Savings Plans are Microsoft’s newest addition to their cost-saving toolkit, designed to offer a middle ground between the flexibility of Pay-As-You-Go and the deep discounts of Reserved Instances. Think of them as a more flexible way to commit to Azure spending — you’re committing to spending a certain amount over time, rather than locking into specific resources.

At their core, Savings Plans work by having you commit to spending a fixed amount per hour for either a one- or three-year term. It’s rather like having a pre-paid mobile phone plan — you commit to spending a certain amount, but you have flexibility in how you use it.

This means you can:

• Apply your commitment across multiple services
• Change your resource types whenever needed
• Move between Azure regions without penalty
• Scale up or down within your committed spend

Types of Savings Plans in Azure

Microsoft currently offers two main types of Savings Plans for Azure:

Compute Savings Plans:

Azure Savings Plan for compute includes:

• Virtual Machines
• Container Instances
• Azure Functions
• Azure App Service
• Azure Dedicated Hosts

General Purpose Savings Plans:

These extend beyond compute usage to cover additional eligible Azure resources, including:

• Database Services (Azure SQL Database, MySQL, PostgreSQL)
• Analytics Services (Synapse Analytics, Data Explorer)
• Storage Services (Premium Storage, Data Transfer)
• Integration Services (API Management, Data Factory)

The broader coverage of General Purpose Savings Plans makes them particularly valuable if you’re using diverse Azure services across your infrastructure. That said, they do typically offer slightly lower discounts than service-specific reservations.

Commitment and pricing structure

When you go for a Savings Plan, you’ll need to decide on your:

Commitment term:

• One year: Lower discount but shorter commitment
• Three years: Maximum savings but longer commitment

Payment options: 

• Monthly payments: Spread the cost over the term
• Upfront payment: Additional savings for paying the full amount immediately

Hourly commitment: 

• Fixed amount you commit to spending per hour
• Can be as little as £1 per hour
• Automatically applied to your highest-discount eligible usage first

The savings can be pretty substantial — up to 65% off Pay-As-You-Go rates for some services. But the actual savings you’ll see depend on several factors; the regions where you deploy resources, your term length, and the types of resources you use.

Let’s look at Azure virtual machines, for example. With VM types, your savings will vary significantly based on whether you’re using general-purpose options in your VM instances like the D-series, compute-optimised F-series, or memory-optimised E-series instances. Even within the same specific VM series, different VM sizes and generations can affect your potential savings.

One particularly clever aspect of Savings Plans is their automatic application to eligible services. The billing system continuously optimises how your commitment is applied, making sure you always get the best possible value from your plan.

How Reserved Instances work

Whilst we’ve covered Azure Reserved Instances in previous articles, let’s focus on some key aspects that are particularly relevant when comparing them with Savings Plans.

Reserved Instances or Azure Reservations work by allowing you to reserve specific Azure resources for one or three years in exchange for significant discounts. The key difference from Savings Plans is that you’re committing to particular resources rather than to a spending amount.

What makes Reserved Instances particularly powerful is their specific optimisation capabilities:

Instance Size Flexibility is one of the most valuable features, automatically applying your reservation to different sizes within the same family. This means you can maintain your savings even when you need to scale up or down, which works particularly well for virtual machines with varying workload requirements.

The exchange and refund options provide another layer of flexibility. You can exchange unused reservations for credit towards new ones, adjust your commitments as your needs change, and even cancel early if necessary.

And when it comes to scope management, you have the choice between single subscription or shared scope, allowing you to apply reservations across an entire organisation and optimise usage across different departments or projects.

Comparing Savings Plans vs Reserved Instances

Now that we understand both options, let’s compare them across several important factors that might influence your decision.

Flexibility vs savings trade-off

The key difference between these models lies in their approach to flexibility and savings. Savings Plans offer more adaptability in terms of resource types and usage patterns, making them ideal for organisations with evolving needs. However, this flexibility comes at the cost of slightly lower maximum discount rates compared to Reserved Instances.

Reserved Instances, on the other hand, can offer higher potential savings — up to 72% off pay-as-you-go rates. This deeper discount comes with more rigid resource commitments, making them better suited to stable, predictable workloads where you can plan capacity more precisely.

For even better cost reduction in Azure, both Savings Plans and Reserved Instances can be combined with Azure Hybrid Benefit, which lets you use your existing Windows Server and SQL Server licences in Azure (perfect for when you’re migrating to Azure.)

Resource coverage

The systems in for which you can actually use each pricing model differs, too.

Savings Plans:

• Offer broad coverage across compute services
• Automatically apply to eligible services
• Are easier to manage across different resource types
• Are better for mixed workload environments

Reserved Instances:

• Are specific to particular resource types
• Must be managed separately for different services
• Give more granular control over reservations
• Are better for specialised workload requirements

Management complexity

The management overhead between these two options differs significantly. Savings Plans offer a more streamlined approach to cost optimisation in Azure, requiring less hands-on management once they’re set up. You don’t need to spend time on detailed capacity planning, and the automated optimisation means you can largely set it and forget it. This makes them particularly attractive for organisations with limited cloud management resources or those preferring to focus their IT team’s attention on other priorities.

Reserved Instances, while offering deeper discounts, demand more active management and attention. You’ll need to regularly review your Azure reservations (to ensure they make sense for your actual usage patterns), plan capacity more carefully, and potentially make adjustments as your needs change.

This isn’t necessarily a disadvantage — many organisations like the greater control this offers — but it does require more dedicated time and expertise. You’ll need team members who understand both your workload patterns and how to optimise reservations effectively.

Making the right choice for your business

Choosing between these options isn’t always straightforward, but there are some clear indicators that can guide your decision.

Choose Savings Plans if your organisation:

• Needs flexibility in resource selection
• Has evolving or changing workload patterns
• Wants simpler management overhead
• Is comfortable with slightly lower discount rates
• Uses a variety of compute services

Choose Reserved Instances if your organisation:

• Has stable, predictable workloads
• Wants maximum possible savings
• Can commit to specific resource types
• Has the expertise to manage reservations
• Needs granular control over resource commitments

Or consider using both Savings Plans and Reserved Instances together

Many organisations find the best solution is to use both options in tandem. For instance, you might use Reserved Instances for your stable production environments while using Savings Plans for development and testing workloads. This hybrid approach allows you to maximise both savings and flexibility across different parts of your infrastructure.

Implementation and management best practices

Making use of either Savings Plans or Reserved Instances takes some planning and ongoing attention. The initial setup phase is a time to be careful — you’ll want to begin with a thorough analysis of your current usage patterns. This means examining a good few months of usage data to identify stable workloads and understand your consumption patterns across different services.

When starting with either option, it’s wise to begin conservatively. Rather than committing your entire workload at once, consider starting with a smaller commitment — perhaps 50% of your stable workload. This approach allows you to get familiar with the management aspects while minimising risk. You can always increase your commitment as you become more comfortable with the system and have better insights into your usage patterns.

For Savings Plans, focus initially on understanding your hourly commitment needs. Look at your baseline usage across compute services and consider how this might grow over your commitment period. The beauty of Savings Plans lies in their flexibility, but you’ll still want to see your committed Azure spend aligning with your actual usage patterns.

With Reserved Instances, pay particular attention to right-sizing before making your commitment. It’s better to slightly under-commit initially than to over-commit and end up with unused reservations. Remember that you can always add more reservations but while Microsoft are currently not enforcing a fee for cancellations or reductions, this may change at some point in the future.

Monitoring becomes essential once you’ve implemented either option. Azure Cost Management offers really good tools for tracking your savings and usage patterns. Set up regular reviews to make sure you’re achieving your expected savings and that your commitments align with your actual usage. Watch for any consistent under-utilisation, as this might indicate a need to adjust your commitments or redistribute resources.

Common pitfalls to avoid include failing to account for seasonal variations in workload, not considering future growth plans, and neglecting to review and optimise regularly. You’ll also want to maintain clear documentation about your commitments and decision-making process — this becomes particularly valuable during team transitions or when scaling your cloud infrastructure.

Next steps and getting support

Whether you opt for the flexibility of Azure’s savings options, the deep discounts of reserved capacity setups, or a combination of both, the key to Azure FinOps success lies in thorough planning and ongoing management.

If you’re feeling overwhelmed by the options or want to make sure you’re making the most cost-effective choice for your business, Synextra’s elite cloud experts are here to help. We can:

• Analyse your current Azure usage patterns and compute costs
• Help you choose the most appropriate cost optimisation strategy
• Guide you through the implementation process
• Provide ongoing support and optimisation

Get in touch with our team today to find out more on your Azure cost optimisation options.