This chapter covers Azure Reservations and Savings Plans, two cost-saving mechanisms that reduce pay-as-you-go rates in exchange for a commitment. Understanding these options is critical for the AZ-305 exam, as cost optimization is a core pillar of the Well-Architected Framework. Approximately 10-15% of exam questions touch cost management and optimization, with at least 2-3 questions directly on Reservations and Savings Plans. You must know the differences, when to use each, and how they interact with other Azure services to design cost-effective solutions.
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Imagine you run a restaurant and need to order eggs every week. You have two options: a Reservation or a Savings Plan. A Reservation is like signing a contract to buy 100 dozen eggs every week for a year, at a fixed price per dozen. You must take that quantity even if you only use 80 dozen; you pay for 100. But if you need more than 100, you pay the regular price for the extra. A Savings Plan is like committing to spend $500 per week on eggs, but you can use that $500 to buy any combination of egg types (cage-free, organic, etc.) as long as the total stays under $500. If you spend less, you still pay $500. If you need more, you pay the regular price for the excess. The restaurant analogy mirrors Azure: Reservations lock in a specific VM series and region (like a specific egg type), while Savings Plans give flexibility across VM sizes and regions (like different egg types) as long as you meet a spending commitment. Both require a one- or three-year commitment and offer significant discounts (up to 72% for Reservations, up to 65% for Savings Plans) compared to pay-as-you-go. The key difference is flexibility: Reservations require precise capacity planning, while Savings Plans adapt to changing workloads.
What Are Azure Reservations and Savings Plans?
Azure Reservations and Savings Plans are discount models that offer reduced rates on Azure resources in exchange for a one-year or three-year commitment. They are part of Azure Cost Management and are designed to help organizations save money on predictable workloads. The core idea is simple: commit to a certain level of usage upfront, and Azure gives you a discount compared to pay-as-you-go pricing.
Azure Reservations apply to specific resource types, such as Virtual Machines, SQL Database reserved capacity, Cosmos DB reserved capacity, Azure App Service Premium tier, Azure Redis Cache, and others. For VMs, you commit to a specific VM size (e.g., D2s v3) in a specific region (e.g., East US) for a term. The discount is automatically applied to matching resources.
Azure Savings Plans are more flexible. You commit to a hourly spend amount (e.g., $10/hour) for one or three years. The discount applies to compute services across regions and VM sizes, as long as the resource is in the Savings Plan scope (management group, subscription, or resource group). The discount rate varies by service and region, but it's generally lower than Reservations for the same commitment.
How They Work Internally
Both Reservations and Savings Plans use a benefit allocation engine that runs in real-time to apply discounts. Here's the mechanism:
Purchase and Scope: You buy a Reservation or Savings Plan through the Azure portal, using an Enterprise Agreement, Microsoft Customer Agreement, or WebDirect subscription. You define the scope: shared (applies to all subscriptions in a billing account), management group, single subscription, or resource group. The scope determines where the discount can be applied.
Benefit Allocation: When a resource runs (e.g., a VM is provisioned), Azure's billing system checks for applicable Reservations or Savings Plans. For Reservations, it matches the resource's attributes (VM size, region, tier) against the Reservation's attributes. If matched, the resource gets the discounted rate. For Savings Plans, the system checks if the resource's cost falls within the committed hourly spend. If yes, the discount is applied, otherwise the pay-as-you-go rate applies.
Priority: If both a Reservation and a Savings Plan apply, the Reservation is used first because it is more specific and typically offers a higher discount. The Savings Plan covers any remaining eligible usage after Reservations are exhausted.
Billing: At the end of each billing period, Azure calculates the total cost as: (discounted usage * reservation rate) + (remaining usage * pay-as-you-go rate). The commitment for Savings Plans is tracked hourly; if you under-consume, you still pay the committed amount. If you over-consume, the extra is at pay-as-you-go rates.
Key Components, Values, Defaults, and Timers
Term: 1 year or 3 years. 3-year terms offer higher discounts (up to 72% for VMs vs 40% for 1-year).
Scope: Shared (default), Management Group, Single Subscription, Resource Group. Shared scope applies to all subscriptions in the billing account. Changing scope is allowed but requires a cancellation or exchange.
Payment options: Monthly (no additional cost) or upfront (full payment at purchase). Upfront can provide an additional 5% discount.
Discount rates: Vary by product, region, and term. Example: D2s v3 VM in East US, 3-year Reserved Instance gives ~60% discount vs pay-as-you-go. Savings Plan for compute gives ~55% discount for 3-year commitment.
Exchange and cancellation: Reservations can be exchanged for another Reservation of the same type (e.g., VM to VM) with no penalty. Cancellation is allowed with a 12% early termination fee (deducted from refund). Savings Plans cannot be exchanged or cancelled; you must use the committed amount.
Renewal: Reservations and Savings Plans do not auto-renew by default. You must manually renew or set up auto-renewal in the portal.
Configuration and Verification Commands
You can manage Reservations and Savings Plans via Azure CLI, PowerShell, or REST API.
Azure CLI examples:
List reservations:
az reservation listPurchase a VM reservation (example):
az reservation purchase \
--reservation-order-id "new-reservation-order" \
--sku "Standard_D2s_v3" \
--location "eastus" \
--quantity 1 \
--term "P1Y" \
--applied-scope "Single" \
--subscription-id "<subscription-id>"List savings plans:
az savingsplan listPurchase a savings plan (example):
az savingsplan purchase \
--billing-plan "P1Y" \
--billing-scope "ManagementGroup" \
--commitment "{\"amount\":10.0,\"currency\":\"USD\",\"grain\":\"Hourly\"}" \
--display-name "MySavingsPlan" \
--term "P1Y"PowerShell examples:
Get-AzReservation
New-AzReservation -ReservationOrderId "..." -Sku "Standard_D2s_v3" -Location "eastus" -Quantity 1 -Term P1Y -AppliedScopeType Single -SubscriptionId "..."Interaction with Related Technologies
Azure Hybrid Benefit: Can be combined with Reservations/Savings Plans for additional savings on Windows VMs and SQL Server. The discount from Hybrid Benefit is additive.
Azure Cost Management: Provides recommendations on which Reservations/Savings Plans to buy based on historical usage. You can view utilization reports to optimize.
Azure Policy: Can enforce tag requirements or restrict VM sizes, which indirectly affects Reservation applicability.
Azure Budgets and Alerts: Set budgets to monitor spending and receive alerts when approaching commitment levels.
Important Exam Details
Reservations are product-specific; Savings Plans are flexible.
Savings Plans cover only compute services (VMs, App Service, AKS, etc.), not databases or other PaaS.
Both require an active Azure subscription with a billing account (EA, MCA, or WebDirect).
Discounts are applied automatically; no manual configuration is needed after purchase.
Utilization below 100% means you paid for unused capacity. Aim for >90% utilization to maximize savings.
Reservations can be exchanged; Savings Plans cannot.
For VMs, a Reservation covers the compute cost only, not storage or networking.
Savings Plans have a commitment per hour; if you use more, you pay pay-as-you-go; if you use less, you still pay the commitment.
How to Choose Between Them
Use Reservations for stable, predictable workloads where you know the exact VM size and region for at least a year. Examples: production databases, always-on VMs.
Use Savings Plans for dynamic or variable workloads that span multiple VM sizes or regions. Examples: dev/test environments, autoscaling workloads, containers.
A common strategy is to use Reservations for baseline capacity and Savings Plans for variable capacity above the baseline.
Analyze Historical Usage Data
Start by analyzing your Azure usage over the past 30-90 days using Azure Cost Management. Identify resources that run continuously (e.g., production VMs) and those that are variable. Look for patterns: average hourly spend, VM sizes used, regions, and service types. This data helps you decide whether a Reservation or Savings Plan is more suitable. For Reservations, you need exact VM sizes and regions. For Savings Plans, you need the total compute spend. Azure provides recommendations based on this analysis.
Determine Commitment Term and Scope
Decide between 1-year or 3-year commitment. 3-year offers higher discounts but locks you in longer. Then choose the scope: Shared (default) applies to all subscriptions in the billing account; Management Group applies to subscriptions under that group; Single Subscription applies to one subscription; Resource Group applies to a specific resource group. Scope affects how the discount is shared across your organization. For example, a shared scope maximizes utilization if you have multiple subscriptions.
Purchase Reservation or Savings Plan
In the Azure portal, navigate to Reservations or Savings Plans. Select the product type (e.g., VM) and fill in the details: term, scope, quantity (for Reservations) or hourly commitment (for Savings Plans). You can pay monthly or upfront. After purchase, the discount is automatically applied to matching resources. For Reservations, ensure the VM size and region match exactly. For Savings Plans, the discount applies to any eligible compute usage within scope until the commitment is met.
Monitor Utilization and Optimize
After purchase, monitor utilization via Azure Cost Management. For Reservations, check if the utilization is above 90%. Low utilization means you overcommitted; consider exchanging the Reservation for a smaller size or different scope. For Savings Plans, monitor hourly usage; if you consistently underuse, consider reducing the commitment at renewal. Azure provides alerts for low utilization. You can also set up budget alerts to avoid surprises.
Renew or Adjust at Expiration
As the term ends, decide whether to renew, modify, or let it expire. Reservations can be exchanged or cancelled (with penalty) before expiry. Savings Plans cannot be changed; you must let them expire and repurchase if needed. Plan ahead to avoid paying pay-as-you-go rates unexpectedly. Use Azure's renewal recommendations to guide your decision.
Scenario 1: Large Enterprise with Stable VM Workloads
A multinational corporation runs 500 VMs for its ERP system across three regions: East US, West Europe, and Southeast Asia. The VMs are fixed sizes (D8s v3) and run 24/7. The team analyzes 90 days of usage and sees consistent 100% utilization. They purchase 1-year Reservations for each region, covering 100% of the VMs. This saves 40% compared to pay-as-you-go. They set up auto-renewal to avoid expiry. Common mistake: not matching the exact VM size (e.g., buying D8s v3 but using D8s v4) — Reservations are size-specific, so they wouldn't apply. They also enable Azure Hybrid Benefit for Windows VMs to save an additional 40% on the OS license.
Scenario 2: Startup with Autoscaling AKS Cluster
A startup runs a Kubernetes cluster using AKS. The node pool sizes vary: sometimes using small VMs, sometimes large, and they scale up/down based on traffic. They also use different regions for disaster recovery. A Reservation would be too restrictive because VM sizes change. Instead, they purchase a 3-year Savings Plan with a $100/hour commitment. This covers all compute usage across regions and sizes, giving a 55% discount. They monitor utilization monthly and see 85% usage — they could have committed a bit less, but the savings still outweigh pay-as-you-go. They set a budget alert to notify if spend exceeds the commitment.
Scenario 3: Managed Service Provider (MSP) with Multiple Customers
An MSP manages 20 customer subscriptions under a single Enterprise Agreement. Each customer has different workloads: some stable, some variable. The MSP buys Reservations for the stable workloads (e.g., SQL databases) with a shared scope, so the discount applies across all subscriptions. For variable workloads, they buy a Savings Plan with a shared scope. This maximizes discount utilization. A common pitfall: scoping incorrectly. If they set scope to a single subscription, other subscriptions lose the benefit. They also use Azure Cost Management to allocate costs to each customer.
Misconfiguration Issues: - Buying a Reservation for a VM size that is later deprecated (e.g., D series replaced by Dv3). The Reservation still applies to the deprecated size, but if you migrate to a newer size, the discount is lost. Exchange the Reservation for the new size. - Not updating scope after organizational changes (e.g., moving subscriptions to a new management group). The discount may not apply to the new subscriptions. - Overcommitting on Savings Plans: committing $200/hour but only using $150/hour — you pay $50/hour for unused capacity. Always analyze historical usage carefully.
The AZ-305 exam tests your ability to design cost-optimized solutions using Reservations and Savings Plans. Key objectives include: - AZ-305: Design for cost optimization – Recommend appropriate cost management strategies, including Reservations and Savings Plans (Objective 1.3). - You must understand the differences, when to use each, and how to combine them with Azure Hybrid Benefit.
Common Wrong Answers and Why Candidates Choose Them:
"Reservations are always better because they offer higher discounts." – While true for specific resources, they lack flexibility. If the workload changes, you lose savings. Candidates forget that Savings Plans offer flexibility across VM sizes and regions.
"Savings Plans cover all Azure services." – They only cover compute services (VMs, App Service, AKS, etc.). Databases, storage, and networking are not included. Candidates mistakenly think they cover everything.
"You can cancel a Savings Plan at any time without penalty." – Savings Plans cannot be cancelled or exchanged. Reservations can be exchanged or cancelled with a 12% fee. This is a frequent trap.
"Reservations and Savings Plans can be used together but the Savings Plan applies first." – Actually, Reservations apply first because they are more specific. The Savings Plan covers any remaining eligible usage.
Specific Numbers and Terms to Memorize: - Discount ranges: Reservations up to 72% (3-year VM), Savings Plans up to 65% (3-year). - Term lengths: 1 year or 3 years. - Payment options: monthly or upfront (upfront gives additional ~5% discount). - Scope options: Shared, Management Group, Single Subscription, Resource Group. - Exchange allowed for Reservations only; cancellation fee 12%. - Savings Plan commitment is hourly.
Edge Cases and Exceptions: - If you have a Reservation for a specific VM size but later resize the VM, the discount no longer applies. You must exchange the Reservation for the new size. - If you have multiple subscriptions, a shared scope maximizes utilization. However, if you want to track costs per department, use management group or single subscription scope. - For SQL Database reserved capacity, the discount applies to the DTU/vCore model, not the storage or backup costs.
How to Eliminate Wrong Answers: - If the question emphasizes flexibility across VM sizes or regions, choose Savings Plan. - If the question mentions a fixed, unchanging workload with specific VM size, choose Reservation. - If the question asks about cancellation or exchange, remember that only Reservations support exchange/cancellation. - If the question involves databases (SQL, Cosmos DB), only Reservations apply (no Savings Plan for databases). - Always check the scope: shared scope is the default and applies to all subscriptions in the billing account.
Reservations offer higher discounts but are less flexible than Savings Plans.
Savings Plans cover only compute services; databases and storage require separate Reservations.
Both require a 1-year or 3-year commitment; 3-year terms give higher discounts.
Reservations can be exchanged or cancelled (12% fee); Savings Plans cannot.
Discounts are applied automatically; no manual assignment needed.
Scope options: Shared, Management Group, Single Subscription, Resource Group.
For stable workloads, use Reservations; for variable workloads, use Savings Plans.
Combine with Azure Hybrid Benefit for additional savings on Windows VMs and SQL Server.
Monitor utilization monthly; aim for >90% utilization to maximize savings.
Use Azure Cost Management recommendations to guide purchasing decisions.
These come up on the exam all the time. Here's how to tell them apart.
Azure Reservations
Applies to specific resource types (VM, SQL, Cosmos DB, etc.)
Requires exact match on size, region, and product
Higher discount (up to 72% for 3-year VM)
Can be exchanged for another Reservation of same type
Can be cancelled with 12% early termination fee
Azure Savings Plans
Applies only to compute services (VM, App Service, AKS)
Flexible across VM sizes, regions, and compute services
Lower discount (up to 65% for 3-year)
Cannot be exchanged or cancelled
Commitment is hourly spend amount
Mistake
Reservations and Savings Plans are the same thing.
Correct
They are different: Reservations lock in a specific resource (e.g., VM size, region, product) while Savings Plans commit to a hourly spend amount and apply flexibly to any compute resource within scope.
Mistake
Savings Plans cover all Azure services including databases and storage.
Correct
Savings Plans only cover compute services (VMs, App Service, AKS, etc.). They do not cover databases, storage, networking, or other PaaS services.
Mistake
You can cancel a Savings Plan at any time with a partial refund.
Correct
Savings Plans cannot be cancelled or exchanged. You must use the committed amount. Reservations can be exchanged or cancelled (with a 12% fee).
Mistake
If you buy a Reservation, it applies to all VMs regardless of size or region.
Correct
Reservations are specific to a VM size (e.g., Standard_D2s_v3) and region. They do not apply to different sizes or regions unless exchanged.
Mistake
You need to manually assign Reservations or Savings Plans to resources.
Correct
The discount is automatically applied by Azure's billing system to matching resources. No manual assignment is required.
Reveal each answer, then mark whether you got it right. Score 60%+ to unlock the next chapter.
Azure Reservations are specific to a particular resource (e.g., VM size, region, product) and offer higher discounts (up to 72%). Azure Savings Plans are more flexible, applying to any compute resource within a committed hourly spend, with discounts up to 65%. Reservations can be exchanged or cancelled; Savings Plans cannot. Use Reservations for predictable workloads and Savings Plans for variable ones.
Yes. When both apply, Azure uses the Reservation first because it is more specific and offers a higher discount. The Savings Plan covers any remaining eligible usage after the Reservation is exhausted. This combination maximizes savings.
You can pay monthly or upfront. Upfront payment gives an additional discount (about 5%). Monthly payment has no extra cost. Both options are available for 1-year and 3-year terms.
Yes, you can change the scope of a Reservation after purchase (e.g., from single subscription to shared). This can be done in the Azure portal. However, you cannot change the scope of a Savings Plan after purchase.
Any usage beyond the commitment is charged at pay-as-you-go rates. For Reservations, if you buy 2 VM instances but run 3, the third is pay-as-you-go. For Savings Plans, if your hourly spend exceeds the committed amount, the excess is pay-as-you-go.
They are available for Enterprise Agreement, Microsoft Customer Agreement, and WebDirect subscriptions. They are not available for Azure Free Account or some promotional credits. Check eligibility in the Azure portal.
Analyze your historical usage. If you have consistent, predictable workloads with fixed VM sizes and regions, buy Reservations. If your workloads are variable or span multiple sizes/regions, buy Savings Plans. Use Azure Cost Management recommendations to guide you.
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