For years, one of the most popular ways to reduce spend in AWS has been Reserved Instances (RIs). I’ve found that many customers have a love/hate relationship with this offering: on the one hand, they offer immense discounts. But on the other hand, they can be time consuming to manage and ensure you are getting the maximum value out of your investment. That’s why we’re excited that AWS is rolling out a new, simpler cost savings offering in addition to RIs. This new offering, called Savings Plan, will provide more flexibility (applying across all Regions and Families), while offering the same cost savings (66-72% discounts) as Reservations.
Amazon describes Savings Plans as “A new flexible pricing model which helps you save up to 72% on EC2 and Fargate usage. Customers simply commit to a consistent amount of usage (e.g. $10/hour) over 1 or 3 years, and in exchange they will receive a discount for that usage.”
Whenever a new offering is added to the mix, determining how it fits into your overall portfolio of options can be complicated — even if it’s designed to make things simpler! This is especially true if you’ve been managing your cloud costs in a spreadsheet or home-grown tools. So let’s explore in more detail what Savings Plans are and how they work.
Types of AWS Savings Plans and how they work
Here’s how Savings Plans work:
- Every instance type has an On-Demand rate and a Savings Plan rate (these are the same as, or very similar to, Reservation rates).
- Customers can commit to a certain spend per hour, and they will get a discount on all compute usage up to that limit; afterwards they get billed On-Demand rates.
- The Savings Plan commitment is assessed on an hourly basis and AWS will apply the discount to the area with the deepest discount.
Here’s a quick example to illustrate the points above: You purchase a $10/hr All Upfront Savings Plan for 1 year, ($10/hr * 24 * 365 = $87,600). If we assume the Savings Plan has a 66% discount, the $10/hr commitment would actually cover you for up to $30 of On-Demand usage per hour. Any usage above that will be charged at the On-Demand price. For EC2 Instance Type Savings Plan, all spend within that instance family (M5, T3, etc) within the specified region will be discounted up to the hourly commitment. This allows customers to easily change instance sizes within the family and have the discounted rate apply.
AWS is releasing two different types of Savings Plans with different discount levels and options. Here’s a quick comparison of the two types:
In short, there are two options, a more flexible option for a discount, and a somewhat less flexible option for a deeper discount. Savings Plans, like Reservations, are all about balancing cost with flexibility to maximize savings while ensuring coverage. If this model sounds familiar, it’s because it has a lot of similarities to Standard and Convertible Reservations. Like Reserved Instances, Savings Plans can be purchased in 1 year or 3 year terms with All Upfront, Partial Upfront, or No Upfront payment terms.
Savings Plans, like Reservations, are all about balancing cost with flexibility to maximize savings while ensuring coverage.
Comparing AWS Savings Plans and Reservations
While Savings Plans and Reservations have a lot in common — they both allow you to make an upfront monetary commitment in exchange for a discount — there are several key areas in which they differ:
- Flexibility across Region: While Reservations have gotten more and more flexible over the years, one area where customers have never been able to make changes is across Regions. Compute Savings Plans offer this ability. This is big news for large global organizations that operate in every AWS Region. Note: at this time, Beijing and Ningxia are not available in this offering.
- Automatic coverage wherever you will benefit the most: Over the years, AWS has released capabilities to make Reservations more flexible, culminating in Convertible and Size Flexible Reservations. But ultimately, all of these required customers to take action to ensure they were always getting the greatest value out of their Reservations. Savings Plans represent the most flexible and easy-to-use savings mechanism to date. AWS will evaluate on an hour-by-hour basis where the Savings Plan can best be applied and shift coverage to where you need it.
- Applicability to multiple services: This is a subtle shift, so it may have gone unnoticed, but the introduction of Compute Savings Plans is the first time AWS has released a savings mechanism that applies across multiple services, in this case EC2 and Fargate. This opens the doors to some exciting possibilities–for example, what about Database Savings Plans? Or Machine Learning Savings Plans? We’ll have to wait and see where AWS goes with this next.
- Purchase in dollars per hour rather than instances: Another subtle shift, but one that requires a mindset change when you are purchasing Savings Plans compared to Reservations. Savings Plans are purchased on a dollar per hour commitment, with the smallest possible commitment of $8.760 per year (this equals 1/10 of a cent per hour). Previously, Reservations were purchased based on the instance cost.
- Tune your Partial Upfront payments: Savings Plans enable you to decide how much money you want to put down upfront for a Partial Upfront Savings Plan, anywhere from 50%-99%. While the savings rate doesn’t change, it gives customers the opportunity to stretch a capital expense budget or potentially spend “use it or lose it” budget at the end of a fiscal period.
I already have Reservations, what should I do now?
Never fear! Reservations are not going away. We anticipate that for years to come, customers will have both Reservations and Savings Plans. If usage qualifies for both a Reservation and a Savings Plan, AWS will always prioritize applying the Reservation first, then fill in any gaps with a Savings Plan (in case you were wondering, no you cannot double dip Reservations and Savings Plans). You will still need to actively manage your Reservations, to ensure you get the full value out of your commitment. That’s an area where CloudHealth can help!
CloudHealth and AWS Savings Plans
Feeling a bit overwhelmed? CloudHealth is here to help. Not only does our platform help you make more informed decisions, but our customer success team is standing by to be your guide. CloudHealth is fully committed to supporting AWS Savings Plans. I’m excited to announce that CloudHealth now supports AWS Savings Plans, with initial Platform support and via our newly formed Savings Strategy Desk. In addition, we continue to help customers manage Reservations with the RI Optimizer and Convertible RI Exchanger for EC2 and other services to ensure those investments are protected. From here, Savings Plans will be incorporated across the platform. We envision that CloudHealth will simplify the selection of the right discount plan — Savings Plan, Standard Reservation, or Convertible Reservation — understanding the full context of your cost and usage. This evolution in cloud economics is directly in-line with CloudHealth’s vision for Cloud Financial Management and how we envision helping enterprises evaluate, plan, and manage their financial investments.
Learn more about Savings Plans
If you want to learn more about the AWS Savings Plans then check out our free eBook, The Ultimate Guide to AWS Savings Plans. The eBook goes into more detail about each type of Savings Plans, the differences between Convertible/Standard Reserved Instances and Savings Plans, and offers situational examples to help you determine which discount program makes the most sense for your organization.