Azure Reservations, Savings Plans and Pay-as-You-Go: How the Commitments Work
Every Azure virtual machine hour can be billed three ways: at the pay-as-you-go rate, against a reservation, or against a savings plan. The discount is what gets quoted; the mechanics decide whether you keep it. This is how each commitment behaves on the invoice, what it covers, and when each one fits.
Three ways to pay for the same hour
Pay-as-you-go is the default. Usage is metered, nothing is committed, and the meter stops when the resource does.
A reservation is a commitment to a specific product for one or three years: a virtual machine size in a region, a SQL Database tier, a block of storage capacity. Once bought, the discount applies automatically to matching usage. Microsoft is explicit that a reservation is a billing discount and does not affect the runtime state of the resource.
A savings plan is a commitment to spend a fixed amount per hour on eligible compute or database services for one or three years. Instead of naming a size and a region, you name a dollar figure, and Azure applies the benefit each hour to whatever eligible usage gives the largest discount.
Both can be paid up front or monthly with the same total and no extra fee; monthly payments run for whole months from the purchase date. Both are charged to the subscription's payment method and appear on your Microsoft invoice, not ours.
How a reservation applies
The discount follows attributes you pick at purchase: the SKU, the region where that applies, and the scope. Scope can be a single resource group, a single subscription, a management group, or shared across every eligible subscription in the billing context. Azure processes reservations in that order, narrowest first, and you can change the scope after purchase without a commercial transaction.
Reservations apply hour by hour and are use-it-or-lose-it. If no matching resource runs in a given hour, that hour's benefit is gone; there is no carry-forward. When you shut a machine down, the discount moves to another matching resource in scope if one exists.
Instance size flexibility widens the match for virtual machines: a reservation bought with that option covers sizes in the same series group. It does not stretch across families or regions.
What a VM reservation does not cover matters as much. Microsoft lists compute only: no Windows or other software charges, no networking, no storage. Windows and SQL licensing is handled separately through Azure Hybrid Benefit. SQL Database and SQL Managed Instance reservations likewise cover compute, not license, storage or networking.
Auto-renew is on by default for new reservations, and the renewal price is published 30 days before expiry. If the price changes in between, Microsoft does not process the renewal and you buy afresh.
How a savings plan applies
There are two: a compute savings plan on a one- or three-year term, and a database savings plan on a one-year term. The compute plan covers infrastructure charges from Azure Virtual Machines, App Service, Functions premium plan, Container Instances, Dedicated Host, Container Apps and Spring Apps Enterprise, and, like reservations, excludes software, networking and storage. The database plan covers infrastructure and software for SQL Database, SQL Managed Instance, PostgreSQL, MySQL, Cosmos DB and related services, including the hourly SQL Server licenses on Azure VMs and on SQL Server enabled by Azure Arc.
Each hour, Azure takes your eligible usage inside the plan's scope, applies the savings plan rate starting with the product that carries the largest discount, and deducts the result from the hourly commitment until it is exhausted. Usage above the commitment is billed at pay-as-you-go. An hour's unused commitment expires. Discount rates vary by product and by term, not by how much you commit. Microsoft evaluates each hour with a sliding 48-hour window, so recent charges can shift while usage data arrives.
When you hold both kinds of commitment, reservations are applied first, then savings plans; three-year plans before one-year plans; narrower scopes before wider ones.
Two differences from reservations stand out. Auto-renew is off by default. And a savings plan is available only under an Enterprise Agreement, a Microsoft Customer Agreement or a Microsoft Partner Agreement, which is how CSP subscriptions qualify; individual pay-as-you-go offers do not get the discount.
Changing your mind: exchanges, refunds and trade-ins
A savings plan cannot be canceled, refunded or exchanged. Microsoft's cancellation page is one line long: all purchases are final.
Reservations are more forgiving today. You can refund reservations up to USD 50,000 of canceled commitment in a rolling 12-month window per billing scope, and Microsoft states it is not currently charging an early-termination fee while reserving the right to add one. You can exchange within a product family for a different size, region, term or quantity, provided the new purchase is worth at least the refund; the term resets on the new reservation.
The rules tighten on February 1, 2027. Reservations bought after that date for services a savings plan covers, including virtual machines, App Service and SQL Database, are no longer exchangeable. Reservations bought before it keep one final exchange. Instance size flexibility and the refund policy are unaffected.
Trade-ins go one way. You can trade eligible VM, Dedicated Host, App Service and database reservations in for a savings plan, up to 100 reservations in one purchase, as long as the new plan's total commitment equals or exceeds the remaining value of what you return. You cannot trade a savings plan back into a reservation.
One CSP-specific point: Microsoft says a CSP customer cannot exchange, cancel, renew or refund a reservation themselves; they ask their partner to do it. If we are your CSP, that is us.
When each one fits
Microsoft's own sequence for commitments is a good discipline. Right-size first, because a discount reduces the rate, not the waste. Exchange reservations that no longer match what runs. Trade rigid reservations on variable workloads in for a savings plan. Buy new reservations only for stable, well-understood workloads. Then add a savings plan sized to the clean baseline.
Pay-as-you-go fits anything you will switch off, re-architect or retire within the year: dev and test, a pilot, a server you are keeping only until the application is replaced.
A reservation fits a workload that runs continuously with no expected change to size, family or region: domain controllers, a file server, a SQL Managed Instance that has looked the same for three years. The portal shows the last known utilization for each reservation and can alert on it; a reservation that is not fully used is the one to exchange or trade in.
A savings plan fits a fleet that changes: a mix of App Service, Functions and containers, a VM estate you resize as you go, or workloads that may move region.
Most organizations of this size end up with a small reservation layer under the servers that never change, a modest savings plan over the rest, and the remainder on pay-as-you-go. That is a deliberate structure, not a compromise.
Who buys it, and who the charge belongs to
To buy a reservation you need the built-in Owner or Reservation Purchaser role on an eligible subscription; a custom role that imitates Owner does not work. Enterprise administrators and MCA billing profile owners can restrict purchases to themselves through a policy switch. Savings plans follow the same pattern with a Savings plan purchaser role, and under a Microsoft Partner Agreement only the Azure role-based route is supported.
Under CSP, partners can buy reservations on a customer's behalf through Partner Center when authorized, or grant the customer the purchaser role to buy in the portal. Either way the commitment is metered by Microsoft and billed to you at list price, visible on your invoice and in Cost Management. Microsoft sends notifications on purchase, upcoming expiry, expiry, renewal, cancellation and scope change; make sure they reach a mailbox someone reads.
FAQ: commitment questions we hear most
Can we buy reservations or savings plans on a CSP subscription?
Yes. CSP subscriptions are eligible for reservation discounts, and savings plans are available under a Microsoft Partner Agreement. Your partner buys on your behalf or grants you the purchaser role.
What happens when a commitment expires?
Reservations auto-renew by default unless you turn it off; savings plans do not renew unless you turn it on. Either way the resources keep running and are billed at pay-as-you-go.
Does a reservation cover the Windows license on a VM?
No. VM reservations and compute savings plans cover infrastructure only. Windows and SQL Server software charges are separate meters, which Azure Hybrid Benefit can cover if you hold eligible licenses.
Can we get out of a savings plan?
No. Purchases are final. Reservations can be refunded within the USD 50,000 rolling limit, and eligible ones can be traded in for a savings plan.
Should we hold both?
Often. Azure applies reservations first because they are more restrictive, then the savings plan absorbs what is left. The order is automatic; the sizing is your decision.
Pay-as-you-go, reservation and savings plan compared
| Pay-as-you-go | Reservation | Savings plan | |
|---|---|---|---|
| Commitment | None | A product, size and region for one or three years | A fixed hourly spend for one or three years (databases: one year) |
| Applies to | Everything, at list rate | Usage matching the reserved attributes and scope | Eligible compute or database usage in scope, largest discount first |
| Unused benefit | Not applicable | Lost for that hour | Lost for that hour |
| Flexibility | Total | Instance size flexibility within a series; rescope any time | Any eligible service or region; rescope any time |
| Excludes | Nothing | Software, networking, storage | Software, networking, storage |
| Cancel or change | Stop the resource | Refund up to USD 50,000 per rolling 12 months; exchanges restricted from February 1, 2027 | No cancellation, refund or exchange |
| Renewal default | Not applicable | Auto-renew on | Auto-renew off |
| Eligible agreements | All | EA, MCA, CSP, pay-as-you-go rate subscriptions | EA, MCA, MPA only |
| Fits | Short-lived, changing or unknown workloads | Stable workloads that will not change size, family or region | Fleets that change shape but keep a steady spend floor |
Sources
- Microsoft Learn, "What are Azure Reservations?" (cost-management-billing/reservations/save-compute-costs-reservations)
- Microsoft Learn, "How a reservation discount is applied" (cost-management-billing/reservations/reservation-discount-application)
- Microsoft Learn, "Buy a reservation" (cost-management-billing/reservations/prepare-buy-reservation)
- Microsoft Learn, "Self-service exchanges and refunds for Azure Reservations" (cost-management-billing/reservations/exchange-and-refund-azure-reservations)
- Microsoft Learn, "Automatically renew reservations" and "View reservation utilization" (cost-management-billing/reservations)
- Microsoft Learn, "What are savings plans?", "How a savings plan discount is applied", "Decide between a savings plan and a reservation", "Buy a savings plan", "Savings plan cancellation policies", "Savings plan scopes", "Automatically renew your savings plan", "Self-service trade-in for savings plans" and "Software costs not included in savings plans" (cost-management-billing/savings-plan)
Key takeaways
- Reservations and savings plans are billing discounts on usage that would have happened anyway; neither changes what runs, and both are billed by Microsoft to you.
- A reservation matches a product, size, region and scope hour by hour and loses any hour without a match; instance size flexibility widens the match within a series.
- A savings plan is a fixed hourly spend applied to eligible compute or database usage, largest discount first, with the remainder at pay-as-you-go rates.
- Reservations can be refunded within a USD 50,000 rolling limit and, for purchases before February 1, 2027, exchanged; savings plans are final.
- Right-size first, fix existing commitments next, reserve only what will not change, and size any savings plan to a baseline you can defend.
Want the commitments sized to what actually runs? Our Azure Cost Optimization and FinOps Assessment right-sizes the estate, reviews existing reservations for exchange or trade-in, and recommends a reservation and savings plan layer at Microsoft's list price. The Managed Azure FinOps and Cost Guardrails service keeps utilization, renewals and budgets watched afterwards, and an Azure Well-Architected Review covers the cost pillar alongside reliability and security. Fixed price, quoted in writing; the Azure consumption and any commitments stay on your Microsoft invoice.
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