Cost estimates and choosing a host
On-demand vs reserved instances vs savings plans vs spot: which pricing fits your workload?
How on-demand, reserved capacity, savings plans, committed-use discounts and spot pricing work, with break-even maths in CAD and when each fits a small business.
On-demand pricing charges full rate with no commitment and fits new, variable or short-lived workloads. Reserved capacity, savings plans and committed-use discounts give a lower rate in exchange for a one- or three-year commitment and fit the steady baseline you are confident will keep running. Spot or preemptible capacity is much cheaper spare capacity the provider can reclaim at short notice, and fits work that can be interrupted. The rule that protects you: measure first, commit only to the steady minimum, and calculate the break-even point before signing.
This guide is part of the cost estimates overview. Discounts and terms differ by provider and change; all percentages here are illustrative.
The pricing models side by side
| Model | What you commit to | Typical flexibility | Fits | Main risk |
|---|---|---|---|---|
| On demand | Nothing | Start and stop any time | New, variable, short-term workloads | Highest unit price |
| Reserved instances / reserved capacity | A specific instance family, size or region for 1 or 3 years | Limited; some types can be exchanged or resold | Steady servers that will not change much | Paying for capacity you stop using |
| Savings plans / spend commitments | A spend amount per hour for 1 or 3 years | More flexible across sizes or services | Steady total spend whose mix may change | Committing to more spend than you end up using |
| Committed-use discounts | Resources or spend for 1 or 3 years | Varies by provider | Similar to the two above | Same |
| Sustained-use or automatic discounts | Nothing (applied automatically on some platforms) | Full | Servers that run most of the month | None, but smaller discount |
| Spot / preemptible | Nothing; capacity can be reclaimed | High, but interruptions | Batch jobs, testing, rendering, CI builds | Interruption at short notice |
Payment options for commitments usually include all upfront, partial upfront and no upfront (monthly). All upfront gives the largest discount and the largest risk if plans change.
Break-even: the number to work out first
Break-even is how long the workload must run before the commitment beats on demand.
Illustrative example: all-upfront, three years. A server costs $250 a month on demand ($3,000 a year). A three-year all-upfront commitment costs $5,400.
- Break-even = $5,400 ÷ $3,000 = 1.8 years
- Saving if it runs all three years = $9,000 − $5,400 = $3,600, or 40%
- If you retire it after one year, you paid $5,400 for $3,000 of on-demand use: a $2,400 loss
Enter these figures in the migration and commitment payback calculator: cost $5,400, yearly amount $3,000, growth 0%, horizon 3.
Illustrative example: no-upfront, one year. The same server at an illustrative 25% discount, paid monthly: $187.50 a month. You pay $2,250 for the year whether it runs or not. Break-even in months: $2,250 ÷ $250 = 9 months. If the server might be shut down within nine months, stay on demand.
How much to commit
- Collect two to three months of real usage after right-sizing (vCPU and RAM guide).
- Find the floor: the lowest level of compute you used every hour of every day.
- Commit to that floor or a little less, not the average or the peak.
- Leave the rest on demand and scale it up and down.
- Review every quarter and add commitments as the floor rises.
Illustrative example. Usage swings between $400 and $900 a month of on-demand compute, never dropping below $400. Committing $350 a month of spend at an illustrative 30% discount means the commitment costs $245 and covers $350 of on-demand-equivalent usage, saving $105 a month, about $1,260 a year, with little risk of waste.
Spot capacity: cheap, with conditions
Spot prices can be a fraction of on-demand, but the provider can take the capacity back with short notice. Spot fits:
- overnight batch processing and reports;
- build and test pipelines;
- rendering and data processing that can resume from checkpoints.
It does not fit a single database server, a payment system or a customer website without redundancy. Use it alongside on-demand capacity, not instead of it.
Currency and tax with commitments
If your provider bills in USD, the commitment is fixed in USD; a weaker Canadian dollar raises the CAD cost of every remaining payment. A large all-upfront payment converts once, which removes FX risk for the term but concentrates it on one day's rate. GST/HST applies to the payment as it is charged. See USD pricing and FX.
For accounting, a prepaid multi-year commitment is generally a prepaid expense recognised over the term rather than deducted all at once; ask your accountant.
Commitments and exit plans
A three-year commitment is also a three-year reason not to move. If you might migrate to another host, change architecture or close a product line, factor that into the term. See migration and exit costs and the selection checklist.
FAQ
Are reserved instances transferable?
On some platforms certain reserved types can be exchanged for different sizes or sold on a marketplace, with conditions. Others cannot be changed. Read the commitment terms before you buy.
Do commitments apply to licences?
Often only to the compute part. Licence-included Windows or database charges may be priced separately. Check what the discount covers; see software licences in the cloud.
Do VPS hosts offer similar discounts?
Many offer lower monthly prices for yearly or multi-year prepayment. The same break-even logic applies: compare the prepaid total with the monthly total for the time you expect to stay.
Sources
- Canada Revenue Agency — GST/HST on prepaid services, deducting business expenses
- Bank of Canada — exchange rates for USD commitments
- Competition Bureau Canada — advertised discounts and price representations
