Reduce costs with Azure Reserved VM Instances

Cutting costs is what every customer wants. With Reserved VM Instances (RIs), Microsoft offers a pricing model that can achieve this.

Increasingly, cloud strategists are also including the pricing models of hyperscalers in their considerations. Whether Microsoft's RIs pricing model should be applied must be well considered. In principle, RIs offers advantages for users who need to provide 24/7 cloud services without interruption and at any time. But RIs also comes into consideration for customers who need to apply strict budget planning as their requirements change. And finally, for customers who use their own software licences in Azure (Azure Hybrid Benefit), there is additional savings potential. So RIs is of particular interest to three customer groups.

According to Microsoft, RIs can save up to 80% of the costs compared to a pay-as-you-go pricing model when Azure Hybrid Benefit and Reserved VM Instances are used together.

Diagram: Cost savings with RIs - source Microsoft"Cost savings with RIs" | source Microsoft

The following parameters serve as a calculation basis for a decision:

  1. In which Azure region will the service be operated?
  2. Which VM-SKU and in which number will be used?
  3. What is the runtime of these VMs?

Depending on the type of contract, Enterprise Agreement (EA) or a pay-as-you-go subscription, you now choose whether RIs is used for different subscriptions within an EA or only in a specific subscription. Since the RIs pricing model cannot be applied to all SKUs and regions, checking and, if necessary, optimisation play a special role here. Once a decision has been made, the corresponding SKUs are ordered in the Azure Marketplace under "Reserved VM Instances".

If you have assigned the RIs pricing model to VM SKUs within a region, they are no longer considered in the pay-as-you-go cost calculation. Only software licences and VMs that have not been reserved and paid for in advance are calculated as before. If you use your own software licences, you save additional money. Note, however, that there are no advantages if the defined VM SKUs have not been activated.

When requirements change, Microsoft offers two options. First, one can switch reservations at any time. If one does so, there is a pro-rata refund of the unused amounts, which are then credited to the new price. Of course, this only works if the price is the same or even higher. Cancellation is also possible at any time. The remaining pro rata credit will then be refunded minus a service fee of 12 % of the original price. 30 days before the expiry of a reservation, an information will be sent asking for a new reservation. If no reservation is made, the VMs simply continue to run and are charged on a pay-as-you-go pricing model.

It is also important to note that while Microsoft prioritises RI provisioning, it does not guarantee availability. In the worst case, this means that the requested RIs VMs are not available in a region. However, this is said to be a very rare occurrence.