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Azure Pricing Models

Pay-As-You-Go vs Reserved Instances vs Savings Plans - Choose the right model for maximum savings

Understanding Azure Pricing Options

Azure offers multiple pricing models to help organizations optimize cloud costs. Choosing the right model depends on your workload patterns, commitment ability, and flexibility requirements.

Pay-As-You-Go

Full Price (no commitment)
  • No upfront commitment
  • Pay only for what you use
  • Maximum flexibility
  • Best for variable workloads
  • Ideal for dev/test environments
  • Stop anytime without penalty

Reserved Instances

Up to 72% savings
  • 1-year or 3-year commitment
  • Specific VM size and region
  • Best for steady-state workloads
  • Exchangeable for other RIs
  • Can be shared across subscriptions
  • Capacity reservation option

Savings Plans

Up to 65% savings
  • 1-year or 3-year commitment
  • Hourly spend commitment
  • Flexible across VM sizes
  • Works across regions
  • Applies to multiple services
  • Best for dynamic workloads

Detailed Comparison

Feature Pay-As-You-Go Reserved Instances Savings Plans
Savings Potential 0% Up to 72% Up to 65%
Commitment Term None 1 or 3 years 1 or 3 years
Flexibility Maximum Limited (specific SKU) High (hourly spend)
Best For Unpredictable workloads Stable production VMs Mixed workloads
Cancellation Anytime Early termination fee Early termination fee

Reserved Instances Deep Dive

Reserved Instances (RIs) offer the highest savings for predictable workloads:

How RIs Work

  • Upfront Payment Options: All upfront (highest discount), partial upfront, or no upfront
  • Scope: Single subscription or shared across multiple subscriptions
  • Instance Size Flexibility: Within the same VM series, RIs can apply to different sizes
  • Region Locked: RIs are purchased for a specific Azure region
Pro Tip: Use Azure Advisor recommendations to identify VMs that would benefit from Reserved Instances. Look for VMs with consistent 24/7 usage patterns.

RI Savings by Term

Term Length Typical Savings Payment Options
1 Year 20-40% All upfront, monthly, no upfront
3 Year 50-72% All upfront, monthly, no upfront

Azure Savings Plans

Savings Plans provide flexibility while still offering significant discounts:

Types of Savings Plans

  • Compute Savings Plan: Applies to VMs, dedicated hosts, container instances, Azure Functions Premium, and Azure App Service
  • Machine Learning Savings Plan: Specifically for Azure Machine Learning compute

Key Benefits

  • Commit to hourly spend (e.g., $10/hour) rather than specific resources
  • Automatically applies to eligible compute usage
  • Works across VM families, sizes, and regions
  • Ideal when you know you'll spend a certain amount but workloads vary
Important: Savings Plans and Reserved Instances can be combined, but they don't stack on the same resource. Azure applies the best available discount automatically.

Spot Instances for Maximum Savings

For interruptible workloads, Azure Spot VMs offer up to 90% savings:

  • Best For: Batch processing, dev/test, CI/CD pipelines, stateless applications
  • Risk: VMs can be evicted with 30 seconds notice when Azure needs capacity
  • Pricing: Variable based on demand, set maximum price

Choosing the Right Model

Use Pay-As-You-Go When:

  • Testing new applications or services
  • Workloads are unpredictable or seasonal
  • You need maximum flexibility
  • Short-term projects (less than 1 year)

Use Reserved Instances When:

  • Production workloads run 24/7
  • You can commit to specific VM sizes
  • Workloads will exist for 1-3 years
  • You want maximum savings on stable infrastructure

Use Savings Plans When:

  • You have diverse compute needs
  • Workloads may change in size or region
  • You want commitment savings with flexibility
  • You're modernizing to containers or serverless

Cost Management Best Practices

  1. Analyze Before Committing: Use Azure Cost Management to understand usage patterns for at least 30 days
  2. Start Conservative: Begin with smaller reservations and expand based on actual usage
  3. Combine Strategies: Use RIs for baseline, Savings Plans for growth, and PAYG for spikes
  4. Review Regularly: Quarterly reviews ensure reservations match actual needs
  5. Use Azure Advisor: Built-in recommendations for RI purchases

Additional Resources

Disclaimer: Pricing and savings percentages are approximate and subject to change. Azure pricing varies by region, VM type, and market conditions. Always verify current pricing in the Azure Portal or Azure Pricing Calculator before making purchasing decisions.

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