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Azure Reservations vs Savings Plans: Which One Wins?

Azure Reservations and Azure Savings Plans are among the many ways to optimise costs for workloads in Microsoft Azure.

While both offer substantial discounts compared to standard (pay-as-you-go) pricing, many customers often mistake Azure Savings Plans as a replacement for Azure Reservations.

If you want to learn what they are, how they work and when to choose between Azure Reservations and Azure Savings Plans, look no further.

Author

Niels Kroeze IT Business Copywriter

Reading time 15 minutes Published: 06 May 2025

What is an Azure Reservation?

Azure Reservations, also known as Azure Reserved Instances (RIs), provide a discount of up to 72% with a 1-year or 3-year (and sometimes 5-year) spend commitment. Reservations are typically suited for workloads that run 24/7 in a single Azure region and aren’t expected to change much over the commitment period.

Comparison of on-demand and reserved virtual machine (VM) instances, D3v2 Linux VM (US West 2), showing cost savings for 1-year and 3-year reserved instances.

These are very specific reservations, tied to both VM SKU and region – but not to specific Virtual Machines themselves. Within virtual machines costs, there are two components:

Infrastructure: Hardware or ‘compute‘ (CPU, memory, etc.)
(Virtual Disks are not included, but can be reserved separately)
License: Software (Operating System, Database, etc.)

For reservations, only the infrastructure elements gets a discount and counts toward your committed usage. Licensing costs aren’t discounted and don’t count toward your commitment. The actual discounts depend on the chosen product, region, and time commitment. Sometimes you can save more by choosing a less expensive/congested region.

Each hour, Microsoft checks:

Your committed hourly spend
Your actual usage

Bar graph showing VM usage hours for Instance 1, Instance 2, and Reserved VM Instance across four hours.

If you use exactly the committed amount → that usage gets the discount
If you use more than the committed amount → only the committed part gets the discount; the rest is PAYG
If you use less than the committed amount → you still pay the full committed amount

Once you commit, you always pay that minimum, regardless of actual usage. And the longer you commit for (1 or 3 years), the better your discount generally is.

Do note: The commitment is the minimum you'll pay each hour.

And even though you must commit, it doesn’t mean you need to pay it all upfront (although it does offer more savings). In other words, you can choose to pay every month.

To what service does it apply?

Reserved Instances work for compute, SQL, storage, and other Azure resources and potential savings vary per exact service.

However, there are simply too many Azure services eligible for Azure Reservations to cover them all in this article. Some of them include:

Azure Databricks
Azure OpenAI
App Service
Azure SQL Database
Azure Cosmos DB
Azure Databricks

Azure purchase reservations list with various options and icons.

Read this here to find out all Azure services eligible for Azure Reservations and how much you can save for each.

Pros and Cons of Azure Reserved Instances

Pros	Cons
✅ Cost savings up to 72% compared to PAYG	❌Long-term lock-in as you commit upfront
✅Flexible payments by paying upfront or monthly	❌Use it or lose it; unused discount is wasted and doesn’t carry over
✅Fixed pricing makes it easier to forecast and control cloud spend	❌Rigid as it’s tied to specific Azure region, VM family, and duration
✅Exchangeable across regions, VM sizes, or terms*	❌Not available everywhere
✅Apply to one or many subscriptions	❌Not all VM types are eligible
✅Wide range of services eligible	❌Only compute costs are covered, so additional networking, licensing, etc. charges apply
	❌Reduced cost benefit in deallocating resources

What is an Azure Savings Plan?

Azure Savings Plans for Compute is an easy and flexible way to save on your compute costs compared to pay-as-you-go prices by committing to spending a certain hourly amount for 1 or 3 years. Savings can reach up to 65%.

How does it work?

Unlike Reserved Instances, which apply to specific types of resources based on 24/7 usage, Azure Savings Plans for Compute works by analysing hourly spending and applying savings to the base usage amount.

Just like with RIs, Savings Plans discounts apply to compute infrastructure costs (CPU, RAM, and storage). The discount level depends on the service and region combination, and is based on the length of your commitment, not how much you commit per hour.

While defining a Savings Plan, you don’t need to specify a region or compute type. You just define a billing subscription, the scope, the term, and the commit amount per hour. That’s all.

For example: if you commit to $10 per hour, Azure will trigger the savings plans mechanism hourly. It will look for the most discounted resource available within the scope defined by the Savings Plan, apply the cost benefit to that resource, and then apply it to others if available.

If consumption is below the commitment, Azure applies the discount only up to the used amount. It’s an use-it-or-lose-it plan. Meaning, unused amounts do not carry forward.
If consumption exceeds the commitment, the excess usage is charged at pay-as-you-go rates.

They also don’t cover software licensing costs, like Windows, Windows Server, or SQL Server. You can combine this with Azure Hybrid Benefit (AHB) to save on your licensing costs. It allows you to bring your own licences (BYOL) for Windows, SQL, etc. and not pay that licensing cost a second time in Azure.

To which services do Azure Savings Plans apply?

When it comes to a Savings Plan, it applies to the entire environment. There are multiple services for which you can opt to apply the discounts.

These are the services offered by Azure that can benefit from the savings plan:

Virtual Machines (except for the BareMetal Infrastructure or Av1 series) including those used by AKS (Azure Kubernetes Service), Azure Databricks, and AVD (Azure Virtual Desktop)
App Service (Premium v3 or Isolated v2)
Functions (Premium Plan)
Container Instances
Azure Dedicated Host
Azure Container Apps
Azure Spring Apps Enterprise

A Savings Plan applies across:

All regions
All eligible services
All resources deployed globally

This means the discount will be applied globally across your environment on an hourly basis. You can find more details and services eligible under the Azure Savings Plan documentation.

You can scope a Savings Plans to your entire EA enrolment or MCA billing profile, or narrow it to a specific management group, subscription, or resource group. The scope is flexible and can be changed at any time.

Most importantly, you cannot change the hourly commitment or term nor cancel or exchange Savings Plans.

Pros and Cons of Azure Savings Plan

Pros	Cons
✅Significant cost savings of up to 65% that free up budget	❌Only work for compute resources
✅Great for dynamic or evolving workloads	❌Not always best for fixed, stable workloads
✅Flexibility since they are not tied to specific instances or a single region	❌Reduced savings vs RI's
✅Predictable billing because of committing to a fixed hourly spend	❌No cancellation or exchange
✅More cost flexibility for changing Azure infrastructure needs	❌Requires commitment
✅Shared savings as they work across multiple subscriptions if scoped accordingly	❌Additional usage is charged on PAYG prices
✅Easier Cost management and simpler since Savings Plans eliminate the need to manage separate reservations for each service	❌Unused commitment doesn’t carry over and is lost

Azure Reservations vs Savings Plans: A Comparison

Now that we've covered what Savings Plans and reservations are, let’s compare them side by side to see how they differ and how each can help optimise your cloud spending. Depending on how you use Azure, Savings Plans and Reservations are two methods of reducing infrastructure costs to help make your spending more predictable.

What is the difference between Azure Savings Plans and Azure Reserved Instances?

The difference between Azure Savings Plans and Azure Reservations is that reservations are for more static and predictable workloads that are very specific (VM series, region) where Azure Savings Plans is for dynamic workloads.

Let us dive deeper into it:

With Azure Reservations, you commit to a specific compute/VM type (SKU) or family in a defined region for a fixed time. For instance, a reservation for Ev5 in East US 2 won’t apply to Ddv4 in West US. You would need a separate reservation for each. This means you're locked into that size and location.
With an Azure Savings Plan, you commit to spending a fixed (predetermined) hourly rate on eligible compute services across any region. This can be $10/hour for a 1-year or 3-year term. That discount applies to any matching usage, anywhere in Azure, up to your hourly cap.

Have a look at these differences before you pick one:

	Savings Plans	Azure Reservations
Best for	Dynamic and unpredictable workloads across several regions and services	Constant and predictable workloads in a specific region with no expected changes in workload
Potential Savings vs PAYG	Up to 65%	Up to 72% (Linux OS) or 80% (Windows OS) (when combined with Azure Hybrid Benefit)
Commitment	Fixed hourly spent	Specific resource types in a set region
Terms	1 or 3 years	1, 3, or (sometimes) 5 years
How it’s applied	To a particular group of VMs and Azure region	Only applies to compute services like VMs, container instances, and app services — available across most Azure regions.
Limited to	Only for Azure compute services (virtual machines, Dedicated Hosts, Functions, and App Service)	For more than 16 Azure services across compute, database, app, and storage services
Payment terms	Upfront or monthly	Upfront or monthly
Cancellation policy	No cancellations or changes allowed	Partially refundable (under certain conditions)

Azure Reservations vs Savings Plans: Which One Should You Choose?

Comparison of Azure Reservations and Azure Savings Plans

When to choose Azure Reservations?

Azure Reservations may be your best fit if your workloads are consistent, predictable, and highly stable – meaning you don’t expect any changes to the instance type, family, or region over the chosen term.

In this situation, Azure Reservations offer a better bang for your buck.

Choose reservations when:

Long-term, stable workloads (that are predictable)
Run 24/7 in a single region
Aren’t intending to change VM type, family, or location over the next 1, 3, or 5 years.

When fully used, they offer the highest possible savings. Yet, you must know your baseline resource usage and clearly understand where your workloads are heading over the coming years.

When to choose Azure Savings Plan?

Savings Plans offer substantial discounts and flexible usage across services. But when and why should you consider buying a Savings Plan?

Choose Azure Savings Plans if:

You have dynamic workloads
Your needs change over time
Workloads are spread across different compute services and VM families
If you run workloads across multiple regions or expect to shift locations

If you consistently spend a set amount per hour, but that usage spans different VM types or regions, then Reservations are unlikely to cover your environment. In this case, Savings Plans are a better fit. This is because they apply discounts to all eligible usage across services and regions, up to your hourly commitment, replacing PAYG rates.

Azure Reservations vs Azure Savings Plan: Which One Is Better?

There’s no one-size-fits-all answer. It depends on your usage pattern. Yes, Azure Reservations offer more savings and therefore, are applied first. However, fully understanding your resource requirements is challenging yet crucial to ensure full utilisation.

Besides, Reservations are also more rigid and limited to specific VM families and regions. The same is not true, however, for Azure Savings Plan, which is simpler and provides more flexibility. .

For example, you can start with VMs, then move to VM Scale Sets, or even shift to AKS or later use App Services, Functions. Even better, you may also decide after a while to expand across regions, giving you a lot of flexibility. As you grow over time, you just add new Savings Plans for additional money.

This makes it more of a match for organisations with evolving or growing cloud environments.

However, you cannot exchange or cancel Savings Plans, which may be an option with Reservations.

Real-world Scenario Examples

Rather as seeing Azure Savings Plans as a replacement for Azure Reservations, one should see it as a complementary way of optimising costs.

Scenario 1: When You Should Use Reservations

Your Azure environment mainly consists of IaaS components deployed in just a few Azure areas.
Your applications run on VMs that stay active long-term, with steady capacity needs and little change over time.
Your VMs rarely move between regions or change size, and when they do, it’s done manually and infrequently.

This setup reflects a typical long-running, stable environment with predictable resource usage. In this case, Azure Reservations are the better fit. They offer deeper savings for workloads that don’t shift much over time.

Scenario 2: When Azure Savings Plans makes sense

Let’s say you are shifting from IaaS to PaaS solutions – specifically from traditional VMs to App Services, AKS, or containers instances.

During this phase, usage is less predictable. As you modernise your infrastructure, you might scale up or down frequently, change VM sizes, or shift workloads between regions. Reservations would fall short here, as they require you to predict exact VM usage in advance.

Azure Savings Plans would make a better fit. Simply because they apply discounts across a wider range of compute services and regions, no matter the region, type or size. What matters is your hourly spend commitment. Regardless of whether it goes to a VM, an App Service, or another compute instance, as long as your usage is equal to or below that committed amount, it will be billed at the discounted rate.

Scenario 3: Combining both

What if we told you that you don’t always need one or other?

Let’s say you are sure and comfortable by committing to a certain SKU for a predefined period (1 or 3 years).

You’d want the biggest discount, accepting the fact that you cannot trade it in anymore.

Then you can have a mix of all three: First, you apply Azure Reservations for matching resources (predictable workloads), followed by Savings Plans (for more dynamic workloads) and finally PAYG rates.

The image below visualises this exactly:

Bar graph showing PAYG, savings plan, and reserved instances for 500x VMs of mixed compute types, including 30x D8v2 VMs running 24x7.

This combination gives you the highest possible savings while balancing predictability and flexibility across different workloads.

So you can just use both: first the Reservation is applied, then the Savings Plan. This is followed by any benefits such as Azure Hybrid Benefit. Anything left over then falls under PAYG.

Cost Saving Examples

These examples are simplified, and real-world cost optimisation usually involves more variables.

Example 1: Cost Saving Scenario with Azure Reservations

In this example:

Workloads are deployed across two Azure regions: West Europe and North Europe.
Each region runs 2 virtual machines along with 2 Azure SQL Databases in each region. (2 VMs for the core application workloads & 2 vCore-based Azure SQL Databases)
The infrastructure is stable, with no planned scaling or regional shifts.

Service type	Region	Description	PAYG monthly cost	Discount 3 years	Monthly cost	Monthly savings
Virtual Machines	West Europe	4 D2 v3 (2 vCPUs, 8 GB RAM) (3 year reserved), Windows (License included), OS Only; 0 managed disks – S4; Inter Region transfer type, 5 GB outbound data transfer from West Europe to North Europe	$619.04	31.78%	$422.32	$196.72
Virtual Machines	North Europe	4 D2 v3 (2 vCPUs, 8 GB RAM) (3 year reserved), Windows (License included), OS Only; 0 managed disks – S4; Inter Region transfer type, 5 GB outbound data transfer from North Europe to West Europe	$581.08	30.54%	$403.63	$177.45
Azure SQL Database	West Europe	Single Database, vCore, General Purpose, Provisioned, Standard-series (Gen 5), Primary or Geo replica Disaster Recovery, Locally Redundant, 2 - 2 vCore Database(s) x 730 Hours, 32 GB Storage, SQL License (Pay as you go), RA-GRS Backup Storage Redundancy, 0 GB Point-In-Time Restore, 0 x 5 GB Long Term Retention	$792.21	35.38%	35.38%	$280.32
Azure SQL Database	North Europe	Single Database, vCore, General Purpose, Provisioned, Standard-series (Gen 5), Primary or Geo replica Disaster Recovery, Locally Redundant, 2 - 2 vCore Database(s) x 730 Hours, 32 GB Storage, SQL License (Pay as you go), RA-GRS Backup Storage Redundancy, 0 GB Point-In-Time Restore, 0 x 5 GB Long Term Retention	$755.79	34.39%	$495.89	$259.90

All prices shown are in United States – Dollar ($) USD.
This is a summary estimate, not a quote. For up-to-date pricing information please visit: https://azure.microsoft.com/pricing/calculator/
This estimate was created at 24/04/2025

With this setup, we’re saving a total of $914.39 per month using Azure Reserved Instances across West and North Europe.

This leads to a total saving of $32,918.04 over a 3-year period.

Now, doing a calculation for Azure Savings Plan is not needed, as Azure Advisor gives recommendations.

But if you want to see how much discount you get for different Azure services then you can always use the Azure Pricing Calculator.

For example, if you want to see how much you can save on Azure Functions by leveraging Azure Savings Plans, then just add the Azure functions:

Azure Functions added. View.

Mind you, this only applies to the premium tier.

Azure Functions pricing plan configuration screen showing region, pricing tiers, minimum instances, additional scaled-out units, and savings options.

For the EP1: 1 Cores, 3.5GB RAM, 250 GB Storage it costs $256.11 with 3-year Savings Plan, which is below PAYG pricing of $308.57 - meaning you save €52.46 per month (17% discount).

Again, if you’d wanted to see the potential savings for Azure App Service, you’d do the same – adding it the pricing calculator and then selecting the Premium V3 tier or the Isolated V2.

Note: At time of writing, they are the only eligible tiers for Azure Savings Plans.

The 3-year savings plan gives a 39% discount, saving you $162.28 a month.

As you can see, the discount is a less than RIs, but Savings Plans offer more flexibility, which might be the deciding factor of which discount plan to use.

Closing Thoughts

As we’ve discussed, Azure Reservations and Azure Savings Plans have many things in common; you need to be ready to commit, the billing scopes are alike, and so are the payment terms and options.

In the end, choosing between one or the other (or a combination) depends on your Azure environment. The best choice depends on your needs and usage patterns.

In short:

Use Reservation for stable, predictable workloads, tied to specific SKUS and regions.
Use Savings Plans for dynamic or evolving workloads, with a broader scope and global flexibility.

Remember that you must be 100% sure of your usage patterns, avoiding guesswork to ensure you benefit from these discount plans.

Understanding your own environment and running the numbers before choosing an approach is essential.

There’s always a risk of over-commitment (as well as under-commitment) and cloud waste. Once taken, Savings plans cannot be cancelled or exchanged. So, be sure to think twice before you decide to use them. Chasing the highest discount without considering context can backfire quickly.

Get in Touch!

Not sure whether to choose Azure Reservations or Savings Plans? Contact us and we will happily help you out.

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