Let me be direct: I'm biased, as I am not a huge fan of savings plans. However, I will try my best to stay objective.

How Does a Savings Plan Work?

• Commitment: Define a number of compute hours to commit to. The term "compute" is crucial, as the hours will only apply to compute resources.
• Automatic Application: Microsoft will automatically apply the savings to available resources on a pay-as-you-go pricing plan.
• Unused Hours: If you do not consume the committed hours, they are lost. If you consume more, the extra consumption will be charged at the pay-as-you-go rate.

Savings vary based on SKU. This link provides an opportunity to estimate savings per SKU, with or without Azure Hybrid Benefits.

Comparison with Other Agreements

Savings are based on pay-as-you-go pricing. Therefore, if you have an EA (Enterprise Agreement) or MAC (Microsoft Azure Consumption) agreement with Microsoft, ensure the savings from the Savings Plan exceed those from your agreement. Microsoft should apply the best pricing, whether through the agreement or the Savings Plan.

For example:

1. Assume you have an agreement with Microsoft providing a 10% discount for all resources.
2. For a given resource, the Savings Plan estimated saving is 13%.
3. In this case, the Savings Plan pricing will apply, but you will effectively get only 3% savings compared to your normal pricing.

Cons of the Savings Plan

• Non-Cancelable: The Savings Plan cannot be canceled; you are locked in for at least 12 months.
• Variable Savings: Savings are not always as high as expected. It depends on the SKU and whether you use Azure Hybrid Benefits. Our experience shows that savings are not significantly high, especially if you already have an agreement with Microsoft.
• Complex Forecasting: Forecasting usage is complex, if not impossible.

Our Recommendations

1. Maximize Reserved Instances: Prioritize using Reserved Instances for predictable workloads.
2. Use Savings Plans for Additional Compute: Cover compute not covered by Reserved Instances with a Savings Plan.
3. Avoid Overcommitting: Maintain a margin as you cannot cancel a Savings Plan.
4. Conversion to Savings Plan: With Microsoft's 50K return limit for Reserved Instances, convert the instances you need to cancel into a Savings Plan.