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Key takeaways
1
ESR measures realized commitment savings relative to on-demand-equivalent spend.
2
ICR is a Usage.ai-defined supplemental metric that adds eligible cashback actually recovered from underutilized commitments.
3
ICR can be negative. Recovered cashback can improve or eliminate a negative ESR, but does not guarantee a positive result.
3
Use ESR for standard savings reporting and ICR when documented cashback recovery is part of the commitment model.
Effective Savings Rate (ESR) is a FinOps KPI used to measure realized savings from cloud commitments against on-demand-equivalent (ODE) spend. Insured Commitment Rate (ICR) is a Usage.ai-defined supplemental metric that adds eligible, actually recovered cashback to that savings calculation.
For most FinOps teams, ESR should remain the primary savings benchmark. ICR is useful when a commitment program includes a defined recovery mechanism and you want to show how recovered value changes the realized savings outcome.
In this guide, we’ll compare ESR and ICR, explain how each metric is calculated, show why ICR can still be negative, and outline when to use each metric in cloud commitment reporting.
For most FinOps teams, ESR should remain the primary savings benchmark. ICR is useful when a commitment program includes a defined recovery mechanism and you want to show how recovered value changes the realized savings outcome.
In this guide, we’ll compare ESR and ICR, explain how each metric is calculated, show why ICR can still be negative, and outline when to use each metric in cloud commitment reporting.
The short answer
The simplified formulas are:
ESR
=
Cloud Savings Generated
÷
ODE Spend
ICR
=
(
Cloud Savings Generated
+
Eligible Cashback Recovered
)
÷
ODE Spend
ODE means on-demand-equivalent spend: what the applicable eligible usage would have cost without the relevant commitment discount.
The FinOps Foundation also provides a more detailed ESR calculation that subtracts costs required to achieve the savings outcome from commitment savings before dividing by ODE spend.
It additionally presents utilization × coverage × discount as another way to understand ESR.
The accounting methodology therefore needs to be defined before comparing ESR figures across periods or organizations. See the FinOps Foundation ESR calculation guidance.
For the ICR methodology used in this article, Eligible Cashback Recovered means an amount actually recovered during the measurement period and eligible under the applicable protection terms. It does not include an expected future recovery.
If eligible cashback recovered is zero, ICR equals ESR. If it is positive, ICR is higher than ESR when both calculations use the same scope, period, and denominator.
It measures realized commitment savings against the on-demand-equivalent (ODE) cost of the eligible usage.
The Foundation provides both a detailed calculation that accounts for costs required to achieve the savings outcome and a simplified formulation:
ESR = Cloud Savings Generated ÷ ODE Spend
ESR is therefore more informative than a commitment’s advertised discount. A commitment with a 50% nominal discount will not necessarily produce a 50% ESR if coverage is incomplete or commitments are underutilized.
ESR can also be negative when the economic impact of overcommitment or underutilization outweighs the savings generated.
The FinOps Foundation also references ProsperOps research based on thousands of anonymized AWS organizations as context for ESR benchmarking.
AWS provides billing and cost-management data that can be used to calculate and analyze ESR, but organizations still need a defined ODE methodology and consistent billing data.
It does not directly tell you:
The formula is:
It additionally presents utilization × coverage × discount as another way to understand ESR.
The accounting methodology therefore needs to be defined before comparing ESR figures across periods or organizations. See the FinOps Foundation ESR calculation guidance.
For the ICR methodology used in this article, Eligible Cashback Recovered means an amount actually recovered during the measurement period and eligible under the applicable protection terms. It does not include an expected future recovery.
If eligible cashback recovered is zero, ICR equals ESR. If it is positive, ICR is higher than ESR when both calculations use the same scope, period, and denominator.
What is Effective Savings Rate?
The FinOps Foundation defines Effective Savings Rate (ESR) as a KPI for measuring the financial performance of cloud discount instruments such as Reserved Instances and Savings Plans.It measures realized commitment savings against the on-demand-equivalent (ODE) cost of the eligible usage.
The Foundation provides both a detailed calculation that accounts for costs required to achieve the savings outcome and a simplified formulation:
ESR = Cloud Savings Generated ÷ ODE Spend
ESR is therefore more informative than a commitment’s advertised discount. A commitment with a 50% nominal discount will not necessarily produce a 50% ESR if coverage is incomplete or commitments are underutilized.
ESR can also be negative when the economic impact of overcommitment or underutilization outweighs the savings generated.
The FinOps Foundation also references ProsperOps research based on thousands of anonymized AWS organizations as context for ESR benchmarking.
AWS provides billing and cost-management data that can be used to calculate and analyze ESR, but organizations still need a defined ODE methodology and consistent billing data.
What ESR does not tell you
ESR is a savings-performance metric, not a complete commitment-risk metric.It does not directly tell you:
- How long a commitment remains exposed to usage changes
- What contractual protection terms apply
- Whether a separate recovery mechanism returned money after underutilization
- What exit or cancellation exposure exists
- ESR: How effectively did the commitment portfolio generate savings?
- CLR: How much time-related commitment exposure did the organization take on?
What is Insured Commitment Rate?
Insured Commitment Rate (ICR) is a Usage.ai-defined supplemental calculation that adds eligible recovered cashback to the savings numerator used for an ESR-style calculation.The formula is:
ICR
=
(
Cloud Savings Generated
+
Eligible Cashback Recovered
)
÷
ODE Spend
Note:
ICR is not an AWS billing metric or a FinOps Foundation standard.
Its purpose is narrower: when a commitment program has a defined recovery mechanism, ICR makes the financial effect of actual recovered cashback visible alongside realized commitment savings.
ICR methodology
To make ICR auditable, define the following before calculating it:- Measurement period: the same period used for ESR
- Scope: the accounts, services, workloads, and commitments included
- ODE methodology: the same on-demand-equivalent baseline used for ESR
- Cloud Savings Generated: the savings amount included in the underlying ESR calculation
- Cashback Recovered: eligible recovery actually received or recognized under the applicable protection terms
- Fees and other costs: whether they are included in the savings numerator
- Credits: whether cloud credits are excluded or separately reported rather than treated as cash
- Do not add an expected future cashback payment to a current-period ICR calculation.
- Do not combine a monthly recovery amount with an annual ODE denominator.
- Do not treat cloud credits as real-money cashback unless the defined methodology explicitly treats them that way.
Can ICR go negative?
Yes. This is an important mathematical distinction.Let’s assume:
Cloud Savings Generated:
-$100,000
Eligible Cashback Recovered:
$40,000
ODE Spend:
$1,000,000
ESR
=
-$100,000
÷ $1,000,000 =
-10%
ICR
=
(
-$100,000
+
$40,000
)
÷ $1,000,000 =
-6%
The recovered cashback improves the result by four percentage points, but it does not fully offset the negative savings numerator.
ICR reaches zero only when recovered cashback exactly offsets that negative numerator. It becomes positive only when the recovery exceeds the loss.
Therefore, cashback can partially or fully offset a negative ESR, but ICR is not guaranteed to be non-negative. Assuming eligible cashback is zero or positive and the two metrics use the same scope, period, and denominator, ICR will be greater than or equal to ESR. Want to estimate your potential commitment savings? Use the Usage.ai Savings Calculator.
ICR reaches zero only when recovered cashback exactly offsets that negative numerator. It becomes positive only when the recovery exceeds the loss.
Therefore, cashback can partially or fully offset a negative ESR, but ICR is not guaranteed to be non-negative. Assuming eligible cashback is zero or positive and the two metrics use the same scope, period, and denominator, ICR will be greater than or equal to ESR. Want to estimate your potential commitment savings? Use the Usage.ai Savings Calculator.
ESR vs ICR: What is the difference?
| Dimension | ESR | ICR |
|---|---|---|
| Primary purpose | Measure realized commitment-discount performance | Measure savings plus eligible recovered cashback |
| Formula | Cloud Savings ÷ ODE | (Cloud Savings + Cashback) ÷ ODE |
| FinOps Foundation KPI | Yes | No |
| Usage.ai-defined | No | Yes |
| Can be negative? | Yes | Yes |
| Includes recovered cashback? | No | Yes |
| Measures commitment duration? | No | No |
| Measures exit liability? | No | No |
| Requires a recovery mechanism? | No | Yes, for ICR to differ from ESR |
| Best use | Standard savings reporting and benchmarking | Supplemental reporting where eligible recovery is documented |
When should you track ESR or ICR?
ESR is the better choice when you want to:- Benchmark commitment performance
- Compare savings performance over time
- Evaluate realized savings rather than advertised discounts
- Communicate a recognized FinOps rate-optimization KPI
- Compare commitment strategies using a consistent ODE methodology
- A commitment program provides a defined recovery mechanism
- The recovery amount can be measured and reconciled
- The recovery belongs to the same commitment portfolio and reporting period
- Finance wants to see the effect of recovered value alongside commitment savings
Worked example: ESR vs ICR
Consider an illustrative measurement period:- ODE spend: $820,000
- Cloud savings generated: $140,000
- Eligible cashback actually recovered: $42,000
ESR
$140,000 ÷ $820,000 =
17.1%
ICR
($140,000 + $42,000) ÷ $820,000 =
22.2%
ICR is therefore approximately 5.1 percentage points higher than ESR.
The $42,000 recovery is not additional cloud-provider discount savings. It is the recovered value included in the ICR numerator under this methodology.
Note:
The example is illustrative only. A particular usage decline does not imply a particular cashback amount. Actual recovery depends on the applicable commitment structure, eligibility, timing, and protection terms.
How to compare ESR and ICR correctly
The biggest reporting mistake is comparing two percentages that were calculated using different accounting rules.Before comparing ESR and ICR, confirm:
- Same scope: Use the same accounts, services, workloads, and commitment portfolio.
- Same period: A monthly ICR should not be compared with an annual ESR.
- Same ODE methodology: The on-demand-equivalent baseline must be calculated consistently.
- Same savings treatment: Define whether Cloud Savings Generated is gross commitment savings or incorporates costs required to achieve those savings.
- Same recovery treatment: Count only eligible recovery that can be attributed to the measured portfolio and period.
- Clear treatment of fees and credits: If platform or management fees affect the economic result, state whether they are included in the savings numerator. Treat cloud credits separately unless the methodology explicitly defines them as eligible recovery.
How Usage.ai fits into Insured Commitment Rate
Our Flex Commitments are designed to deliver the savings benefits of cloud commitments with greater flexibility and protection against eligible underutilization.We analyze cloud usage, recommend commitment levels, automate approved purchases, and manage Flex Commitments as part of the program. See What is the Flex-Commit Program?.
With Flex Commitments, teams can access up to 57% savings associated with a 3-year AWS commitment without taking on the long-term commitment risk. If a commitment becomes more expensive than the equivalent On-Demand usage, Usage.ai provides cashback protection to help cover the difference.
Our Flex-Commit Program uses performance-based pricing, with customers paying a percentage of realized savings.
For ICR, the relevant amount is the value actually recovered through cashback during the measurement period. ICR incorporates that recovered value alongside realized commitment savings, providing a broader measure of risk-protected savings.
ICR is a measurement framework, not a guarantee of a particular savings rate or recovery amount.
A practical commitment-reporting framework
ESR and ICR should not be expected to answer every commitment question.A practical reporting stack can include:
- ESR: realized commitment savings
- Coverage: how much eligible usage is covered
- Utilization: how much purchased commitment is consumed
- Lock-in metric: time-related commitment exposure, where applicable
- ICR: savings plus eligible recovered cashback when a qualifying recovery mechanism exists
Common ESR and ICR mistakes
- Confusing nominal discount with realized savings: A 50% commitment discount does not automatically produce a 50% ESR.
- Calling ICR an industry standard: ICR is Usage.ai-defined. It should not be presented as a FinOps Foundation metric.
- Assuming ICR cannot be negative: It can. Recovery must be large enough to offset a negative savings numerator before ICR reaches zero.
- Counting promised recovery: Only eligible recovery actually recognized under the defined methodology should be included.
- Mixing denominators: ESR and ICR must use consistent ODE methodology, scope, and measurement period.
- Treating every recovery as cash: Cashback and cloud credits are not interchangeable. Report them according to the applicable terms and accounting policy.
Frequently asked questions
What is ESR?
ESR is a FinOps rate-optimization KPI that measures realized commitment savings relative to on-demand-equivalent spend. The FinOps Foundation provides detailed and simplified approaches for calculating it.
What is ICR?
ICR is a Usage.ai-defined supplemental metric that adds eligible recovered cashback to the savings numerator used in an ESR-style calculation.
Can ICR be negative?
Yes. If the underlying savings numerator is negative and recovered cashback is insufficient to offset the loss, ICR remains negative.
Does ICR replace ESR?
No. ESR remains the primary established savings-rate KPI. ICR provides an additional view when eligible recovery is part of the commitment model.
Can I calculate ICR without Usage.ai?
In principle, yes. Any organization could apply the methodology if it has a defined, auditable recovery mechanism and can consistently measure eligible recovered amounts, ODE spend, and the underlying savings calculation.
Is there a standard ICR benchmark?
No established industry benchmark currently exists for ICR. Compare it with ESR over consistent reporting periods rather than applying a universal target.
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