Annual Commitment Discount Programs

AWS

• Reserved Instances (RIs): Up to 75% discount for 1-3 year commitments on specific instance types

• Savings Plans: Up to 72% discount with more flexibility to change instance families, regions, and OS

• Spot Instances: Up to 90% discount on unused capacity (though can be terminated)

Azure

• Reserved Instances: Up to 72% discount for 1-3 year commitments

• Azure Savings Plan: Up to 65% discount with flexible hourly compute spend commitments

• Azure Hybrid Benefit: Up to 76% savings by using existing Windows/SQL Server licenses

Google Cloud Platform (GCP)

• Committed Use Discounts (CUDs): Up to 70% discount for 1-3 year commitments to vCPU/memory amounts

• Sustained Use Discounts (SUDs): Automatic 20%+ discounts for resources used >25% of the month (no commitment required)

Key Cost Optimization Strategies

1. Layered Commitment Approach

All three providers use a two-tier system:

• Usage-based commitments (Reserved Instances, CUDs)

• Relationship-based commitments (Enterprise agreements with spend minimums)

2. Flexibility vs. Savings Trade-offs

• Highest savings: Fixed instance type commitments (AWS Standard RIs, Azure RIs)

• Balanced approach: Flexible savings plans that allow instance family changes

• Maximum flexibility: Pay-as-you-go with automatic discounts (GCP's SUDs)

3. Right-sizing Before Committing

Companies should:

• Analyze historical usage patterns

• Forecast growth accurately

• Start with flexible options before locking into specific instance types

• Avoid over-committing to spend-based agreements

4. Hybrid Strategies

• Combine multiple discount types (e.g., Reserved Instances + Spot Instances)

• Use automatic discounts where available (GCP's SUDs)

• Leverage existing license benefits (Azure Hybrid Benefit)

Best Practices for Annual Commitments

1. Start Conservative: Begin with shorter terms (1 year) and flexible options

2. Monitor Usage: Track actual vs. committed usage to avoid waste

3. Plan for Growth: Account for business expansion in commitment sizing

4. Consider Workload Patterns: Match commitment types to workload predictability

5. Negotiate Holistically: Combine usage and spend commitments for maximum leverage

The key is understanding that commitment discounts can provide savings of 65-75%, but companies must balance these savings against the risk of over-committing to unused capacity. Proper forecasting and a layered approach using both flexible and fixed commitments typically yields the best results.