Should you be leveraging Reserved Instances?

What are Reserved Instances?

Reserved Instances are essentially a way for AWS to guarantee EC2 capacity for you. Perhaps more important, this guarantee comes 75% in savings. It gets a little complex to hit that number though, as pricing varies based on both instance type and your payment option. Payment options range from upfront to partial upfront to no upfront, with larger discounts as you pay more upfront.

For AWS, the benefit is clear – they convert your income to guaranteed income and get you to pay upfront.

For you, the benefit is just as clear. Instead of paying “expensive” on-demand prices for instances, pay up to 75% less by reserving these instances. As long as you know you’ll be needing these instances long term, you’re not really taking any risk.

Are Reserved Instances for me?

As far as performance goes, Reserved Instances are no different from On-Demand Instances. It’s just a different way of packaging and charging for the same servers. As such, reservations can be a fit for any company and all sorts of workloads. The real question is if it will help you save money.

As AWS has tested and optimized its RI pricing models over the years, it’s become pretty simple to see when you can save and how much. Below, you can see a simple graph showing the breakeven point for RIs v. On-Demand for m3.medium instances.

Essentially, once you utilize (or sell the RI for the remaining value) 222 or more days of the instance, you’ll already start saving money on the investment.

Best practices for expanding RIs

1. Database Servers as the first workload type for RIs
When it comes to the workload type, you’re best off starting with databases, as they are the most consistent long-term workload.

2. Use the 6-month threshold to decide if you should reserve
If you are running workloads that should be around for at least 6 months – you definitely need to consider buying RIs.

Why 6 months? In short, there are many ways to buy RIs without upfront payment. Likewise, there are also many opportunities to resell them in case you want to break the commitment. 6 months of runtime is enough to ensure you’ll benefit enough from the reservation, and then you can always re-sell your instances.

3. Utilizing the Reserved Instances marketplace to reduce the commitment risk

One of the best “secrets that isn’t a secret”, the Reserved Instance marketplace lets you sell your unwanted or underutilized Reserved Instances. While there is a 12% seller’s fee, the marketplace’s existence removes much of the “risk” that comes with committing to a Reserved Instance for 1-3 years.

Selling is simple – you just register, list your price, and wait. And we can even make it less painful for you.

How to start using RIs: Decisions, decisions, decisions

Decision 1: Instance floor:
In all likelihood, you can safely bet on a minimum number of instances you’re currently running on-demand that you’ll still be running in 6 months from now, barring some major unexpected collapse. All of those instances are great examples of instances you should be reserving.

Decision 2: Workload Type:
Your next decision is deciding which type of workload to start reserving instances for. Again, our recommendation here is to start with a database – the mix of Re-evaluate the cost savings after a few months to see if it’s worth continuing with other workloads.

Decision 3: Commitment Type / Upfront Payment:
Scared of commitment? You should be aware of the Reserved Instances Marketplace. One of the keys to properly provisioning RIs is knowing that there are ways to buy reserved instances without paying a penny upfront. There are also ways to resell (Called “List”) your Reserved Instances and “break” your commitment without getting punished. All through the marketplace.

If for some reason that solution doesn’t fit, there are always Convertible RIs. Basically, all you commit with Convertible RIs is that you’ll be running some kind of instance. Convertible RIs let you reserve instances even if you’re not sure which instance type you’ll need in 1 or 2 years. You can always change the instance family, OS, or tenancy.

Whatever you choose, the basics here are simple – if your company is going to be around in 1-3 years, you should begin investing in RIs.