How to save money on Azure Compute with Savings Plans

If you are an enterprise customer who uses Azure for your compute needs, you might be looking for ways to optimize your spending and reduce your costs. One of the features that can help you achieve this goal is Savings Plans for Compute Insights, a flexible and easy way to save up to 65% on your compute costs by committing to a consistent amount of usage for a one-year or three-year term[1].

In this article, we will explain everything you need to know about savings plans for Compute Insights, including how they work, how they compare to reserved instances, how to use them at different levels, how to distribute the costs, and how to leverage Azure Advisor recommendations. By reading this article, you will be able to make informed decisions about whether savings plans are right for you and how to use them effectively.

Savings Plans are a pricing model that allows you to save money on your compute costs by committing to a certain amount of usage per hour for a one-year or three-year term[2]. You can choose to pay for your savings plans monthly or upfront, and you can apply them to any eligible compute resource in Azure, such as virtual machines, Azure Kubernetes Service, Azure App Service, Azure Functions, and more.

The amount of usage you commit to is called the hourly commitment, and it is measured in dollars per hour[3]. For example, if you commit to $5 per hour for a one-year term, you will pay $5 per hour for any eligible compute usage in Azure, regardless of the region, size, or operating system of the resource. If your usage exceeds your commitment, you will pay the regular pay-as-you-go rates for the excess usage. If your usage is lower than your commitment, you will still pay the committed amount, but you can use the unused portion for future usage within the term.

Figure 1 Hourly spend distribution of compute savings plan usage

Savings plans are different from reserved instances, which are another way to save money on Azure compute by pre-purchasing a specific resource type for a one-year or three-year term. Reservations offer a higher discount rate than Savings Plans, but they are less flexible and more complex to manage[4]. Reservations are tied to a specific region, size, and operating system, and they require you to exchange or cancel them if you want to change your resource configuration[5]. Savings plans, on the other hand, are not tied to any specific resource type, and they automatically apply to any eligible compute usage in Azure, giving you more flexibility and simplicity.

One of the factors that you need to consider before purchasing a savings plan is your existing Microsoft Azure Consumption Commitment (MACC) discount, if you have one[6]. MACC is a discount program that offers you a lower pay-as-you-go rate for your Azure usage, based on your annual commitment and upfront payment. MACC discounts do not stack with savings plan discounts, so you need to compare the two options and choose the one that gives you the best savings. For example, if you have a MACC discount of 5% for your Azure usage, and you purchase a savings plan that offers you a 30% discount for your eligible compute usage, you will only get the 30% discount for the compute usage, and the 5% discount for the rest of the usage. You will not get a 35% discount for the compute usage. This example is for illustration purpose only, and the actual MACC discounts may vary depending on your individual negotiation and commitment.

Another factor that you need to consider before purchasing a savings plan is that it is a 24/7 model, which means that you will pay for your savings plan regardless of whether your compute resources are running or not. This is similar to reserved instances, which also charge you for the entire term, even if you shut down your resources. However, the difference is that savings plans are more flexible and can apply to different resources, whereas reserved instances are fixed and can only apply to the specific resource type that you purchased. Therefore, you need to estimate your usage and commitment carefully, and make sure that you can utilize your savings plan as much as possible. If you have automated shutdown patterns for your resources, you need to be aware that you cannot pick individual hours to use your savings plan, and that you will still pay for the hours that your resources are not running[7].

Savings plans can be used at different levels in Azure, depending on your organizational structure and needs. You can purchase and manage savings plans at the subscription level, the billing account level, the management group level, or the resource group level[8].

If you purchase savings plans at the subscription level, they will only apply to the eligible compute usage within that subscription. This is the simplest and most granular way to use savings plans, as you can easily track and control your usage and costs. However, this option might not be suitable for customers who have multiple subscriptions or who want to share savings plans across different teams or departments.

If you purchase savings plans at the billing account level, they will apply to the eligible compute usage across all the subscriptions within that billing account. This is a more flexible and efficient way to use savings plans, as you can optimize your spending and utilization across multiple subscriptions. However, this option might not be suitable for customers who have multiple billing accounts or who want to have more visibility and accountability for their usage and costs.

If you purchase savings plans at the management group level, they will apply to the eligible compute usage across all the subscriptions within that management group. This is the most scalable and comprehensive way to use savings plans, as you can leverage the hierarchical structure of management groups to organize and govern your savings plans across your entire organization. However, this option might not be suitable for customers who have a flat or simple organizational structure or who want to have more granularity and flexibility for their usage and costs.

If you purchase savings plans at the resource group level, they will only apply to the eligible compute usage within that resource group. This is a more targeted and specific way to use savings plans, as you can align your Savings Plans with your resource groups, which are logical containers for your resources. However, this option might not be suitable for customers who have multiple resource groups or who want to have more scope and diversity for their usage and costs.

Microsoft recommends that you use savings plans at the level that best suits your organizational needs and goals. You can also use a combination of different levels to achieve the optimal balance of flexibility and efficiency. For example, you can use savings plans at the management group level for your baseline usage, and use savings plans at the subscription level or the resource group level for your variable or project-based usage.

One of the challenges of using savings plans at the billing account level or the management group level is how to distribute the costs for savings plans among the different subscriptions or teams that benefit from them. This is especially important if you want to implement a showback or chargeback model for your internal accounting or budgeting purposes.

When you purchase a savings plan, you cannot choose which resources or subscriptions will use the savings plan. Azure automatically applies the savings plan to the resources or subscriptions that have the highest eligible compute usage and the highest pay-as-you-go rates, so that you can maximize your savings[9]. For example, if you have a savings plan of $5 per hour at the billing account level, and you have three resources with eligible compute usage of 4, 3, and 2 CPU hours per hour respectively, and pay-as-you-go rates of $1.5, $1.2, and $1 per CPU hour respectively, then Azure will apply the savings plan to the first two resources, and you will pay $2 per hour for the third resource at the pay-as-you-go rate.

If you want to distribute the costs for savings plans among the different subscriptions or teams that use them, you have two main options: showback or chargeback[10]. Showback is a method of reporting the costs for savings plans to the different subscriptions or teams, without actually billing them. This is useful for increasing the visibility and awareness of the costs and savings for savings plans, and for encouraging the optimal usage and allocation of resources. Chargeback is a method of billing the costs for savings plans to the different subscriptions or teams, based on their actual usage or a predefined allocation[11]. This is useful for implementing a fair and accurate cost recovery model, and for incentivizing the efficient and responsible use of resources.

To implement either showback or chargeback, you can use tags to identify and group the resources or subscriptions that use savings plans. Tags are key-value pairs that you can assign to any resource or subscription in Azure, and that you can use to filter and analyze your costs and savings for savings plans[12]. For example, you can tag your resources or subscriptions with the name of the team, project, or department that they belong to, and then use Cost analysis in Microsoft Cost Management to view and report the costs and savings for savings plans by tag. However, you cannot tag a Savings Plan itself, as it is not a resource, but a pricing model.

You can also use the Azure portal or the API to see which resources or subscriptions are using a savings plan, and how much they are saving[13]. In the Azure portal, you can go to the savings plans blade, and select the savings plan that you want to view[14]. You will see the details of the savings plan, such as the term, the commitment, the payment option, and the expiration date. You will also see the utilization and savings of the savings plan, and the breakdown by resource type, region, and subscription. You can also export the data to a CSV file for further analysis. Alternatively, you can use the API to query the savings plan usage and savings data programmatically[15].

Azure Advisor is a free service that provides personalized and actionable recommendations to help you optimize your Azure resources and services[16]. One of the recommendations that Azure Advisor provides is Savings Plans for Compute Insights, which helps you identify the optimal amount of savings plans to purchase based on your historical usage and projected savings[17].

To use Azure Advisor recommendations for savings plans, you need to follow these steps:

Go to the Azure Advisor dashboard and select the Cost tab.
Review the Savings Plans for Compute Insights recommendation, which shows you the potential savings, the hourly commitment, the term, and the payment option for the recommended savings plan.
Adjust the lookback period, which is the time range that Azure Advisor uses to analyze your usage and calculate your recommendation. You can choose from 7, 30, 60, or 90 days.
Click on Purchase savings plan to go to the Azure portal and complete the purchase process.

Before you purchase a savings plan based on the Azure Advisor recommendation or your own estimation, you should also consider some factors that might affect your decision, such as:

You cannot cancel your savings plans once you purchase them, so you should be confident about your usage and commitment before you buy them[18].
You need to calculate your break-even point, which is the minimum amount of usage that you need to achieve to make your savings plans worthwhile. You can use the Azure Pricing Calculator to estimate your break-even point[19].
You need to monitor and manage your savings plans utilization and performance, and adjust your usage or purchase additional savings plans as needed. You can use the Microsoft Cost Management dashboard and reports to track and optimize your savings plans. You can also use Azure Monitor to monitor the CPU metrics and usage of your compute resources, and to set up alerts and notifications for any anomalies or issues[20].

As an example, if you purchase a savings plan of $5 per hour for a one-year term, and you pay monthly, you will pay $3,600 per month for your savings plan, regardless of your usage. This is because you will pay $5 per hour for 24 hours a day for 30 days a month. If you pay upfront, you will pay $43,200 for the entire term, which is the same as paying $3,600 per month for 12 months. This is the total cost of your savings plan, and it does not include the cost of any other Azure services or resources that you use. You can compare this cost to the cost of your eligible compute usage at the pay-as-you-go rates, and see how much you are saving with your savings plan.

In this article, we have covered the main aspects of Savings Plans for Compute Insights, a feature that can help you save money on your Azure compute costs by committing to a consistent amount of usage for a one-year or three-year term. We have explained how Savings Plans work, how they compare to reserved instances, how to use them at different levels, how to distribute the costs, and how to leverage Azure Advisor recommendations. We have also discussed some factors that you need to consider before purchasing a savings plan, such as your existing MACC discount, your usage patterns, your break-even point, and your utilization and performance monitoring.

We hope that this article has helped you understand and use Savings Plans for Compute Insights effectively, and that you can benefit from the flexibility and simplicity that they offer. We would love to hear your feedback on your experience with savings plans, and any suggestions for improvement or enhancement. You can contact us through the Azure feedback portal or leave a comment below. Thank you for reading, and happy saving!

[1] What is Azure savings plans for compute? – Microsoft Cost Management | Microsoft Learn

[2] Azure Savings Plan for Compute | Microsoft Azure

[3] Choose an Azure saving plan commitment amount – Microsoft Cost Management | Microsoft Learn

[4] Decide between a savings plan and a reservation – Microsoft Cost Management | Microsoft Learn

[5] How an Azure reservation discount is applied – Microsoft Cost Management | Microsoft Learn

[6] Track your Microsoft Azure Consumption Commitment (MACC) – Microsoft Cost Management | Microsoft Lea…

[7] Start/Stop VMs v2 overview | Microsoft Learn

[8] Savings plan scopes – Microsoft Cost Management | Microsoft Learn

[9] How an Azure saving plan discount is applied – Microsoft Cost Management | Microsoft Learn

[10] IT chargeback and showback – Wikipedia

[11] Charge back Azure saving plan costs – Microsoft Cost Management | Microsoft Learn

[12] Group and allocate costs using tag inheritance – Microsoft Cost Management | Microsoft Learn