Azure Cost Management

Azure Cost Management series: Azure Reservations

What are Azure reservations?

Azure Reservations help you save money by committing to one-year or three-year plans for multiple products. Committing allows you to get a discount on the resources you use. Reservations can significantly reduce your resource costs by up to 72% from pay-as-you-go prices. Reservations provide a billing discount and don’t affect the runtime state of your resources. After you purchase a reservation, the discount automatically applies to matching resources. You can pay for a reservation up front or monthly. The total cost of up-front and monthly reservations is the same and you don’t pay any extra fees when you choose to pay monthly. Monthly payment is available for Azure reservations, not third-party products.

After purchase, the reservation discount automatically applies to the resource usage that matches the attributes you select when you buy the reservation. Attributes include the SKU, regions (where applicable), and scope. Reservation scope selects where the reservation savings apply. All reservations, except Azure Databricks, are applied on an hourly basis. Consider reservation purchases based on your consistent base usage. You can determine which reservation to purchase by analyzing your usage data or by using reservation recommendations. Recommendations are available in:

  • Azure Advisor (VMs only)
  • Reservation purchase experience in the Azure portal
  • Cost Management Power BI app
  • APIs

More details about usage of Azure reservations and reserved instances can be found in the following Microsoft Docs article. This article also covers which Azure services can be added as a reserve instance, for example Azure VMs and Azure App Service.

Combine Azure reservations with Azure Hybrid Benefit and CSP licenses

Azure Hybrid Benefit is a licensing benefit that helps you to significantly reduce the costs of running your workloads in the cloud. It works by letting you use your on-premises Software Assurance-enabled Windows Server and SQL Server licenses on Azure. And now, this benefit applies to RedHat and SUSE Linux subscriptions, too.

Now besides the hybrid benefit example mentioned above, end customer can also purchase CSP licenses via their distributor/reseller (annual commitment required) and pay less for Azure Virtual Machine Windows Server licenses as compared to the Azure retail pay-as-you-go pricing of the Azure Virtual Machine resources.

What are the cancellation options?

If you need to break an Azure Reservation amidst its running term, e.g. in the middle of the 1-year Azure Reserved Instance (RI), you can do so with the following options:

  1. RI refund/cancel. In this case, if you opted in for the monthly payment option, you will be refunded pro rata for the remaining of the current month. The unpaid amount for the remainder of your initial RI contract (e.g. 1 year) will be deducted from 50k USD. If after further RI cancellations, you reach this 50k limit, you will no longer be eligible to cancel an Azure reservation, which means that in case of cancellation you will need to pay the full remaining amount for the RI. Also when cancelling you will be subject to a cancellation fee of 12%. This in essence reduces the refunded amount by 12% in an early cancellation.
  2. RI exchange. This can happen only if the new RI is of the same type (e.g. Azure VM for Azure VM) and only if new RI’s cost is the same or higher than the RI being exchanged. In this case, the new RI will be valid from the RI exchange date.


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