Cloud Pricing Models
😟 THE PROBLEM
Your database runs 24/7 for years, and you pay full price every hour.
😊 THE SOLUTION
Match each workload to a pricing model and save a lot.
- Steady workload at full price✓ Reservation: commit 1–3 years, pay less
- Steady spend but changing VM sizes✓ Savings plan for compute
- Expensive overnight batch jobs✓ Spot VMs, if interruptions are OK
Quick answer
Azure offers several ways to pay for the same resource. Pay-as-you-go charges full price for actual usage with no commitment. Reservations and the savings plan for compute give big discounts in exchange for a one- or three-year commitment. Spot pricing uses spare capacity at deep discounts but can be interrupted. Azure Hybrid Benefit lets you reuse existing Windows Server and SQL Server licences.
Exam objective: 1.1.6 Compare cloud pricing models. (Skills measured as of July 20, 2026)
Start with a question
Why does a train ticket bought months ahead cost less than one bought at the station?
Railways reward you for committing early. They can plan capacity, so they give you a discount. Buy at the last minute and you pay full price, but you keep total flexibility. Some railways even sell cheap “standby” tickets: travel only if there is a spare seat.
Azure prices compute in almost exactly the same way.
Explain it like I’m 10
The technical explanation
The consumption-based model tells you that you pay for usage. Pricing models decide how much each unit costs, depending on how much flexibility you are willing to give up.
| Model | Commitment | Discount (vs pay-as-you-go) | Flexibility | Best for |
|---|---|---|---|---|
| Pay-as-you-go | None | None (standard rate) | Highest | New, variable or short-lived workloads |
| Reservations | 1 or 3 years, specific resource type/region | Large (Microsoft cites up to 72% for some VMs) | Lowest (exchanges are possible within rules) | Stable, predictable workloads |
| Savings plan for compute | 1 or 3 years, fixed hourly spend | Significant (Microsoft cites up to 65%) | Applies across sizes, regions and eligible services | Steady spend with changing shapes |
| Spot | None | Deep (up to 90% at times) | Can be evicted at short notice | Batch, rendering, CI, dev/test |
| Azure Hybrid Benefit | Requires eligible existing licences | Removes licence cost | Combines with the models above | Windows Server and SQL Server workloads |
Most flexible
- Pay-as-you-go
- Start, stop, resize any time
- Highest unit price
Balanced
- Savings plan for compute
- Commit to spend, not a resource
- Good discount, adapts to change
Lowest price
- Reservations: lock in a resource
- Spot: accept eviction
- Best for very predictable or very interruptible work
Architect level How commitments are applied on your bill
Reservations and savings plans are billing constructs, not resources. You do not deploy “a reserved VM”. You buy a reservation, and the discount automatically applies each hour to matching running resources in the chosen scope (a resource group, a subscription, a management group or the whole billing account).
- If nothing matching runs in a given hour, that hour of commitment is lost.
- Savings plan benefit applies hour by hour to the usage with the biggest discount first, then any overflow is billed at pay-as-you-go.
- Instance size flexibility lets a reservation cover other sizes in the same VM series.
- Microsoft also offers a savings plan for databases (Azure SQL, Cosmos DB, PostgreSQL, MySQL and others), with smaller discounts than the compute plan.
- Watch utilisation reports in Cost Management. Below roughly 90–100% utilisation, you are paying for nothing.
Real-world business scenario
An online banking platform
- The problem
- Database servers run 24/7 at a constant size; web servers grow and shrink daily; nightly risk calculations are heavy but restartable. Everything was on pay-as-you-go.
- What they used
- Three-year reservations for the database tier, a savings plan for the baseline web compute, autoscale on pay-as-you-go above the baseline, Spot VMs for nightly risk jobs, and Azure Hybrid Benefit for SQL Server.
- Why that choice
- Each workload got the pricing model matching its shape: predictable, flexible-but-steady, variable, and interruptible.
- The result
- Compute spend dropped substantially with no change to the applications themselves.
When to use it and when not to
✓ Use it when…
- **Pay-as-you-go** for new, uncertain or short-lived workloads.
- **Reservations** for steady workloads that will not change size or region for years.
- **Savings plan** for steady compute spend where the mix of VMs and regions changes.
- **Spot** for work that can be interrupted and restarted.
- **Hybrid Benefit** whenever you own eligible licences.
✕ Think twice when…
- Committing before you understand the steady baseline. Measure first.
- Spot for production APIs, databases or anything user-facing that cannot be interrupted.
Interview preparation
Say your answer out loud first, then open the model answer. Interviewers care more about your reasoning than the exact words.
Beginner What pricing options does Azure offer for virtual machines?
Model answer
Pay-as-you-go (no commitment, standard price), reservations (commit for one or three years for a big discount), the savings plan for compute (commit to an hourly spend for a flexible discount), Spot VMs (cheap spare capacity that can be taken away), and Azure Hybrid Benefit to reuse existing licences.
Interviewer follows up
Which is cheapest?
You
Spot is usually the lowest price, but it can be evicted, so it only suits interruptible work. For steady workloads, reservations or savings plans give the best reliable discount.
Intermediate What is the difference between a reservation and a savings plan?
Model answer
A reservation commits to a specific resource, such as a VM family and region, and gives the deepest discount if you use exactly that. A savings plan commits to a dollar amount per hour of compute and applies automatically across VM sizes, regions and some other compute services. It is a slightly smaller discount but much more flexible if your workloads change.
Experienced developer How would you build a cost-optimal purchasing strategy for a mixed estate?
Model answer
Measure the steady baseline over a few months. Cover the very stable, predictable part with reservations (often databases and long-lived VMs), cover the remaining stable compute with a savings plan for flexibility, leave the variable portion on pay-as-you-go with autoscale, and push batch and fault-tolerant jobs to Spot. Apply Azure Hybrid Benefit wherever licences allow. Review utilisation of commitments monthly, because unused commitment is wasted money. Advisor and Cost Management show recommendations and utilisation.
Scenario A video studio renders animations overnight. Jobs can be restarted if a machine disappears. Which pricing model?
Model answer
Spot VMs. Rendering is interruptible and restartable, so the deep discount far outweighs the risk of eviction. Use Scale Sets with Spot priority and checkpointing.
Test yourself with exercises
4 original practice questions in the AZ-900 style. Pick your answers, then check them. You will see why each option is right or wrong. Score 75% or more and this topic is marked complete.
Quick revision
Key points
- Pay-as-you-go: no commitment, standard price, maximum flexibility.
- Reservations: 1 or 3-year commitment to specific resources, large discount.
- Savings plan for compute: 1 or 3-year hourly spend commitment, flexible discount.
- Spot: deep discount on spare capacity, can be evicted, only for interruptible work.
- Azure Hybrid Benefit: reuse eligible Windows Server and SQL Server licences.
Important terminology
- Pay-as-you-go
- No commitment; pay the standard rate for usage, billed monthly.
- Azure Reservations
- Commit to a specific resource type, size and region for 1 or 3 years for a significant discount.
- Azure savings plan for compute
- Commit to a fixed hourly spend on compute for 1 or 3 years; discount applies flexibly across eligible services and regions.
- Spot VMs
- Unused Azure capacity at large discounts that Azure can evict when it needs the capacity back.
- Azure Hybrid Benefit
- Use existing on-premises Windows Server and SQL Server licences (with Software Assurance or qualifying subscriptions) to reduce Azure costs.
Common mistakes
- Using Spot VMs for production workloads that cannot tolerate interruption.
- Buying reservations for workloads that will be resized or retired soon.
Exam tips
- "Commit for one or three years to save money" = reservations (or savings plan).
- "Unused capacity, can be evicted" = Spot.
- "Reuse existing on-premises licences" = Azure Hybrid Benefit.
Five quick revision questions
-
1.What are the two reservation terms available?Show
One year or three years.
-
2.What is the main risk of Spot VMs?Show
Azure can evict them when it needs the capacity back.
-
3.Which pricing option needs no commitment?Show
Pay-as-you-go.
-
4.What does Azure Hybrid Benefit let you do?Show
Use existing eligible Windows Server and SQL Server licences to reduce Azure costs.
-
5.Which is more flexible, a reservation or a savings plan?Show
A savings plan.
Official references
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