How AWS Savings Plans Work

calendar November 7, 2019

The History of AWS Savings Plans

Traditionally, enterprises using the Amazon Web Services cloud leveraged Reserved Instances (RIs) to realize significant cost savings by committing to usage of a specific instance type and operating system within an AWS region.

More recently, AWS has introduced Savings Plans, an additional flexible pricing model for AWS compute services. Densify helps manage Savings Plans and RIs at enterprise scale by proactively determining the optimal strategies to leverage AWS Savings Plans and maximize cloud cost savings.

But how are these purchasing vehicles different? Let’s first look at what Savings Plans are and how they compare to Reserved Instances.

What Are Savings Plans?

Savings Plans are AWS’ flexible pricing model that offers low prices on EC2 and Fargate for a commitment to a consistent amount of usage (measured in dollars per hour) over a 1- or 3-year term. When you sign up for Savings Plans, you will be charged the discounted savings plan price up to your commitment.

Densify’s Cloud Advisors can help you make informed decisions about when to leverage AWS Savings Plans or RIs. Request a demo today and learn how we can help you manage your cloud and container resources!

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For example, if you commit to $25 of compute usage an hour, you will get Savings Plans prices on that usage up to $25, and any usage beyond that commitment will be charged at the usual On-Demand rates.

AWS is offering two different types of Savings Plans:

Compute Savings Plans

This plan provides the most flexibility and can get you a cost reduction of up to 66% and automatically apply to EC2 and Fargate usage. This is drastically simpler than the previous RI’s as the discount applies regardless of instance family, size, AZ, region or tenancy. Now you don’t have to go through the time-consuming efforts to figure out the configurations before you commit.

For example, with a Compute Savings Plan you can change from a T3 to an M5 instance and shift the workload from the US to the EU region, and automatically continue to pay the savings plans price.

EC2 Instance Savings Plans

This plan provides the lowest prices and you can get savings up to 72% in exchange for commitment to usage of an instance family in a specific region (e.g. C5 usage in North Virginia). This automatically reduces your cost on the selected instance family and provides the ability to switch the OS, size, AZ, and tenancy (dedicated or default).

How to Purchase Savings Plans

You can get started with AWS Savings Plans directly from the AWS Cost Explorer management console, or by using the AWS API/CLI. Savings Plans are available with three different payment options:

  1. No Upfront: does not require any upfront payment and your commitment will be charged purely on a monthly basis
  2. Partial Upfront: offers greater savings but you will be charged at least half your commitment upfront and the remaining will be charged on a monthly basis.
  3. All Upfront: offers the highest savings and you will receive the lowest prices and your entire commitment will be charged in one payment.

Purchasing Savings Plans comes with a number of considerations, perhaps greatest of which is how to balance the FinOps concerns of maximizing cost savings while enabling efficient chargeback/showback.

Learn How to Optimally Purchase AWS Savings Plans

Comparing Amazon Reserved Instances to AWS Savings Plans

Compute Savings Plans EC2 Instance Savings Plans Convertible RIs Standard RIs
Savings over On-Demand Up to 66% Up to 72% Up to 66% Up to 72%
Low price in exchange for monetary commitment Yes Yes No No
Pricing automatically applies to any instance families Yes No No No
Pricing automatically applies to any instance size Yes Yes No No
Pricing automatically applies to any tenancy or OS Yes Yes No No
Automatically apply to Fargate usage Yes No No No
Pricing automatically applies across any AWS region Yes No No No
1- or 3-year term length options Yes Yes Yes Yes

Overall, Compute and EC2 Savings Plans can offer greater flexibility in where discounts can be allocated.

Unfortunately, with this added flexibility, the Savings Plans cannot be sold in the RI Marketplace, and there is no separate marketplace for Savings Plans. This means that the spend per hour must remain at commitment levels for the term of the plan to capture all the savings.

Additionally, convertible RIs allow for increased commitment (purchase more RIs to cover additional Instances) during the contracted term, without the need to increase the term. This is helpful when needs change and committing to a new 1 to 3-year term doesn’t make sense. With Savings Plans any addition to the original contract is done with a new contract that starts from day 0.

Are Reserved Instances Going Away? My Company has Existing RIs?

Reserved Instances are not going away in the foreseeable future, and customers still have the option to choose between RI and Savings Plans commitments.

For your existing reservations, you will still need to proactively plan, manage, and optimize your Reserved Instance purchases and exchanges, and Densify has a robust solution to help.

Now, the big question that remains is how to best determine the correct commitment amount for the new AWS Savings Plans. Analysis of historical data and forecasting future usage and spend is extremely complicated.

AWS Savings Plans Purchase Optimization

The good news is that you don’t have to worry about manually analyzing the historical data to develop a Savings Plans purchasing strategy.

Densify analytics fully support AWS Savings Plans. Our patented, predictive machine learning technology and our team of Cloud Advisors can we will empower you to make the optimal, well-informed decisions on how to best leverage Savings Plans, maximizing your overall AWS cost savings.