Cloud Commitment Calculator

How the calculation works

The calculator models a fixed commitment bought at a discount for the whole term, a simplified version of reserved instances, savings plans and committed use discounts, using monthly averages (see the assumptions below). With S as today’s monthly on-demand spend:

• Usage covered C = S × coverage: the on-demand value of the usage the commitment pays for each month.
• Commitment cost K = C × (1 − discount) a month, billed whether it is used or not, and K × months over the term.
• Usage in month m (m = 0 to 12 × term − 1) = S × (1 + growth)^{m ÷ 12}, compounding month by month. The shrink scenario uses (1 − decline) instead.
• Cost with the commitment each month = K + any usage above C, which is billed at on-demand prices.
• Savings = on-demand total − cost with the commitment, over the term.
• Unused commitment = for each month where usage is below C, (C − usage) × (1 − discount): commitment paid for but not used.
• Break-even utilization = 1 − discount.
• No-waste coverage in the shrink scenario = usage in the last month ÷ S: commit at or below this and every month uses the whole commitment.

Assumptions: on-demand prices stay flat over the term; there is no time value of money, so upfront and monthly payment are treated alike. The calculator works on monthly averages. AWS Savings Plans, for example, are applied hour by hour (“Each hour’s commitment can only be used within that hour and cannot be carried over”). With an hourly window, usage that dips at night or at weekends leaves some commitment unused even when the monthly average is above it, so base the coverage on your steady minimum, not your average. Other offers may use different windows, so check the one in yours.

Worked example

A company spends $50,000 a month on-demand and expects 10% a year growth. It is offered a 20% discount on a 3-year commitment and considers covering 80% of today’s spend. It also checks a shrink scenario where usage falls 25% a year.

• Commitment: C = $40,000 of usage a month, costing K = $40,000 × 0.8 = $32,000 a month, or $1,152,000 over 36 months.
• Break-even utilization: 1 − 20% = 80% of the commitment.
• With growth: usage never falls below $40,000, so every month saves 20% of the covered $40,000: 36 × $8,000 = $288,000, 13.9% of the $2,075,458.81 on-demand total.
• Shrink scenario: usage falls below $40,000 from month 11 and stays below it for 26 of the 36 months, ending at $21,605.55. On-demand would cost $1,220,269.01; with the commitment it costs $1,201,932.21, still $18,336.80 less, but $215,730.56 of commitment goes unused.
• No-waste coverage in that scenario: $21,605.55 ÷ $50,000 = 43.2% of today’s spend.

The same inputs on a 1-year term (if the same discount were offered) leave only $1,798.65 unused in the shrink scenario, because usage has less time to fall.

Savings plans, reserved instances, EDP and MACC

• Reserved instances and reservations commit to a specific kind of capacity, such as an instance type or family in a region, for one or three years. They tend to be the least flexible: if the workload changes shape, the reservation may stop matching it.
• Savings plans commit to an amount of spend per hour on eligible services for one or three years. Matching usage is billed at the plan’s lower rates until the hourly commitment is used up, and the rest at on-demand rates. Google Cloud’s equivalent family is committed use discounts.
• Enterprise spend commitments, such as the AWS Enterprise Discount Program (EDP) and the Microsoft Azure Consumption Commitment (MACC), commit to a total spend over a multi-year term, often with yearly minimums, in exchange for terms negotiated with the provider. If you spend less than the commitment, you generally still owe the difference. Their commitments are usually set per year or for the whole term rather than per hour or month, and the terms are negotiated, so this calculator does not model them. Max covers this risk in the podcast episodes AWS Enterprise Discount Program: the fine print and Nobody owns your cloud bill.

Names, terms and flexibility differ by provider and change over time, so read the current terms for the plan you are offered. Before committing, rightsize what you run, so you don’t lock in waste, and decide who owns the commitment once it is signed: cloud financial management is where that usually sits.