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Microsoft Azure Reserved Instances Explained

Table of Contents

Table of Contents

In this article, we will take a detailed look at how Azure Reserved Instances affect the cost of Azure compute consumption.  This is not an introductory article, but more of a 300-level illustration using a specific example to demonstrate the salient points.

Let’s start by defining a few terms: 

  • Azure Reserved Instance (RI) – the ability to pay for Azure compute capacity in a specific Azure region in exchange for a significant discount. 
  • RI Term – the duration of the agreement.  There are only two available terms: 1 year and 3 years.  The 3-year terms provide a deeper discount than an equivalent 1 year term RI. 
  • RI Scope – the scope of an RI is set when the reservation is purchased.  It defines how the RI applies to specific VMs to offset their monthly PAYG cost.  There are two types of scope: 
    • Shared Scope – shared scope RIs can apply to any VM inside of any subscription within a single Azure tenant.   
    • Subscription Scope – subscription scope RIs can apply only to VMs inside of a specific Azure subscription.  Even if there are VMs in other subscriptions that match a specific RI with Subscription Scope, on another subscription it will not offset the monthly cost of that VM.  Only VMs within the subscription where the RI is applied will be offset. 
  • RI Instance Size Flexibility – A feature of Azure RIs that allows a reservation to offset partial cost of a VM or the cost of multiple VMs.  For instance, an RI for a single CPU core VM can offset 50% of the cost of a dual CPU core VM in the same VM size group. 

Let’s see how all this works using an example:

In the example above, we see an Azure tenant with two subscriptions.   

There are 3 Shared Scope reservations 

  • RI-1: E8sv3 (8C/32GB) 
  • RI-2: B4ms (4C/16GB) 
  • RI-3: D2sv3 (2C/8GB) 

There are also 4 Subscription Scope reservations; two in each of the Azure subscriptions. 

  • Subscription A 
    • RI-A1: D2sv3 (2C/8GB) 
    • RI-A2: E4sv3 (4C/32GB) 
  • Subscription B 
    • RI-B1: DS1v2 (1C/3.5GB) 
    • RI-B2: B2ms (2C/8GB) 

Each of the subscriptions has 4 running VMs. 

  • Subscription A 
    • VM-A1: E4sv3 (4C/32GB) 
    • VM-A2: E4sv3 (4C/32GB) 
    • VM-A3: D4sv3 (4C/16GB) 
    • VM-A4: NV6 (6C/56GB) 
  • Subscription B 
    • VM-B1: DS2v2 (2C/7GB) 
    • VM-B2: D8ms (8C/32GB) 
    • VM-B3: E8sv3 (8C/64GB) 
    • VM-B4: D2sv3 (2C/8GB) 

All reservations have a 3-year term and are paid for upfront. 

  • RI-1: $5,257 
  • RI-2: $1,646 
  • RI-3: $968 
  • RI-A1: $968 
  • RI-A2: $2,628 
  • RI-B1: $637 
  • RI-B2: $823 

The total upfront reservation payment for all shared scope and reservation scope RIs is $12,927.

You also have the option to pay for the reservation on a month to month basis rather than all up front.  This comes at no additional cost when compared to the yearly price of the RI.  If you decided to go with monthly payments your monthly cost would be $1,901 compared to the $3055 it would normally cost with full PAYG.  

By purchasing these reservations, the monthly cost of running VMs is offset when there is a matching reservation.  Sometimes the cost is offset completely (as in the case of VM-A1), sometimes it’s offset partially (as in the case of VM-B3), and sometimes there aren’t any RIs available to offset the cost of a VM (as in the case of VM-A4).  

In this example, you can see there is significant savings in using RIs.  Adding up the monthly cost of all 8 VMs and multiplying by 36 months to get the 3-year cost yields $109,980.  However, by utilizing reservations that cost ~$13k, one can save $41,523 or 38% of the 3-year total.  Purchasing additional RIs to offset the remaining monthly cost would result in even greater savings. 

Azure compute reservations are a powerful lever to increase margin for MSPs when creating Azure-based IT solutions.  They are complex and require some planning in advance, but with savings of up to 57% over a 3-year period, RIs are an important tool to MSPs to understand and leverage. 

At Nerdio our mission is to empower MSPs to build and grow their cloud practices in Microsoft Azure. Nerdio’s Azure Cost Estimator is a great place to start in evaluating the magnitude of savings that RIs can provide. 

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