Azure Pricing: Pay-As-You-Go, Reserved, Spot VMs

Understanding Azure's pricing models is critical for managing cloud costs effectively. Azure offers several pricing options for virtual machines and compute services, each suited to different workload patterns. Choosing the right model can save your organisation significant money.

---

How Azure VM Pricing Works

The cost of running an Azure VM is determined by several factors:

Factor	Description
VM size	vCPUs, memory, and features (e.g., Standard_D4s_v5)
Region	Prices vary by region — UK South may differ from East US
Operating system	Linux is typically cheaper than Windows (due to licensing)
Disk type and size	Managed disk costs are separate from compute
Networking	Outbound data transfer charges (inbound is free)
Pricing model	Pay-As-You-Go, Reserved, Spot, or Hybrid Benefit

Important: Compute and storage are billed separately. Even when a VM is deallocated, you still pay for the managed disks.

---

Pay-As-You-Go (PAYG)

Pay-As-You-Go is the default pricing model. You pay for compute capacity per second with no upfront commitment.

Characteristics

Feature	Detail
Commitment	None — start and stop at any time
Billing	Per second, metered from start to deallocation
Flexibility	Full — create, resize, and delete VMs freely
Best for	Variable workloads, dev/test, short-lived environments, unpredictable demand

Example Pricing (Approximate, UK South)

VM Size	vCPUs	RAM	Linux/hr	Windows/hr
Standard_B2s	2	4 GiB	~$0.05	~$0.10
Standard_D4s_v5	4	16 GiB	~$0.19	~$0.37
Standard_E8s_v5	8	64 GiB	~$0.50	~$0.84

Prices are illustrative and vary by region and date. Always check the Azure Pricing Calculator for current rates.

When to Use PAYG

• Development and testing environments
• Workloads with unpredictable or variable demand
• Short-term projects (less than 12 months)
• Trying out new VM sizes before committing

---

Reserved Instances (RIs)

Azure Reserved VM Instances provide significant discounts in exchange for a 1-year or 3-year commitment to a specific VM size in a specific region.

How Reservations Work

1. You purchase a reservation for a VM size, region, and term (1 or 3 years)
2. Azure applies the discount automatically to matching running VMs
3. You pay upfront, monthly, or with a combination

Discount Levels

Term	Typical Discount (vs PAYG)
1 year	Up to 40%
3 years	Up to 72%

Payment Options

Option	Description
All upfront	Pay the full amount at purchase — maximum discount
Monthly	Spread payments across the term — slightly less discount
No upfront	No initial payment — similar monthly cost but with commitment

Flexibility

• Instance size flexibility — a reservation for Standard_D4s_v5 can apply to Standard_D2s_v5 (2 instances) or Standard_D8s_v5 (half an instance) within the same series
• Scope — apply to a single subscription, resource group, or shared across subscriptions in an enrolment
• Exchanges — you can exchange a reservation for a different size, region, or term
• Cancellations — early cancellation incurs a fee (12% of remaining value)

When to Use Reservations

• Steady-state production workloads that run 24/7
• VMs you know you'll need for at least 12 months
• Baseline capacity that doesn't fluctuate