CIO Playbook: Microsoft Dynamics 365 Licensing

Microsoft Dynamics 365 Licensing

Microsoft Dynamics 365 is a powerful cloud-based CRM and ERP application suite, but its licensing can be complex and ever-changing. IT asset management (ITAM) professionals and licensing managers must understand the nuances of Dynamics 365 licensing to control costs, remain compliant, and fully support business objectives.

A clear strategy is crucial: without one, organizations risk overspending on unused licenses or failing to comply with Microsoft’s rules.

This playbook provides a comprehensive guide to all key aspects of Dynamics 365 licensing, offering practical insights for CIOs, ITAM professionals, and Dynamics administrators.

In the following sections, we break down licensing models, core modules and their licensing structures, bundling options with the Power Platform, and different procurement channels (CSP, EA, MCA).

We also address managing transitions from on-premises to cloud, ways to optimize licensing costs and eliminate overspend, and common compliance risks to avoid. Recognizing the value of independent expertise, we include guidance on leveraging third-party licensing advisors (e.g., Redress Compliance) to augment your strategy.

Each section concludes with actionable recommendations to help licensing professionals and Dynamics 365 administrators make informed decisions and maximize the value of their Dynamics 365 investments.

Read Licensing Dynamics 365 CRM & ERP Applications.

Licensing Models: User, Device, and Capacity-Based Options

Dynamics 365 offers several licensing models to accommodate different usage scenarios.

The primary model is per-user licensing, where each named user needs their subscription for the specific Dynamics 365 app(s) they use.

There is also a per-device licensing option for certain scenarios, and some components use capacity or tenant-based licensing rather than per-user.

Understanding these models is the foundation for a sound licensing strategy:

• User Licenses (Named User) – The most common model. Each user is assigned a license for the Dynamics 365 application they need (for example, Sales, Customer Service, Finance, etc.). Users’ licenses are typically sold per user per month. Most Dynamics 365 modules (CRM and ERP) use user-based licensing as the default. Within user licenses, there are sub-categories:
  • Full Users vs. Team Members: Full user licenses (sometimes called Enterprise licenses) provide full functionality of a given Dynamics 365 app. In contrast, Team Member licenses are a low-cost, light-use license for users who only need basic access across Dynamics 365. Team Members can read data and perform limited tasks (e.g. update a few fields or view reports) across multiple modules, but with heavy restrictions on create/edit capabilities. This model is ideal for occasional or read-only users to avoid paying for full licenses they don’t need.
  • Attach Licenses vs. Base Licenses: Microsoft uses a Base and Attach model if a single user needs access to multiple Dynamics 365 apps. The first (primary) app the user is licensed for is the Base license (paid at full price). Additional apps for the same user can often be added as an attachment license at a significantly reduced cost. Attached licenses have the same capabilities as the normal license for that app, but are discounted because the user already has a Base license. (For example, a user with a Sales base license can add Customer Service or Field Service as an attached license at a fraction of the full price.) This model encourages adoption of multiple apps without doubling the cost for each extra module.
• Device Licenses – A license licenses a specific shared device instead of licensing a named user. This is useful in retail stores, warehouses, or factory floors where multiple employees use the same terminal or point-of-sale device across shifts. A Dynamics 365 Device license allows any number of users to use a single device (one login account tied to the device) to access the licensed Dynamics 365 application. Device licenses are available for certain apps (for example, Commerce or Field Service) and are typically priced per device/month. This can be cost-effective if you have more users than devices (e.g., three shift workers using one register can be covered by one device license instead of three separate user licenses).
• Capacity-Based and Tenant-Based Licenses – Some Dynamics 365 products are licensed based on capacity or environment rather than per user. In these cases, you pay for a certain allowance of usage or data, and any number of users can consume that as permitted:
  • Marketing, Customer Insights, and other tenant licenses: Dynamics 365 Marketing, for example, is licensed per tenant with a base capacity of contacts and emails. You pay a flat fee for the Marketing application (covering unlimited users in your organization) and are limited by the number of contacts you can market to. If you need to reach more contacts or send more marketing interactions, you purchase additional capacity (e.g., packs of 10,000 contacts). Similarly, Dynamics 365 Customer Insights is licensed by the number of profiles or data records managed, rather than per user. This capacity model ensures costs align with marketing outreach or data usage rather than user count.
  • Storage and API capacity: Even in user-based licensing, Microsoft includes certain capacity entitlements – for instance, a specific amount of database, file, and log storage in the Dataverse (the underlying data platform) is included per user license. If an organization’s Dynamics 365 data grows beyond the included storage, additional capacity licenses (for extra GB of storage, etc.) must be purchased. Certain features (like additional production environments, AI Builder credits, or omnichannel chat sessions in Customer Service) also use a capacity-based add-on licensing approach.
  • Future consumption-based models: Microsoft is moving toward more consumption-driven licensing in some areas. For example, upcoming changes for 2025 indicate that ERP modules (Finance, Supply Chain) will allocate environments and storage based on capacity rather than fixed per-instance fees. Licensing professionals should be aware that some portions of Dynamics 365 may evolve toward usage-based billing (e.g., paying by database size or transactions) in addition to traditional per-user fees.

Recommendations for Licensing Models:

• Map user types to license types: Categorize your workforce by how they use Dynamics 365. Assign full user licenses only to those who need full functionality; leverage Team Member licenses for read-only or light-use employees (executives, support staff, etc.) to save costs. Consider Device licenses where applicable instead of licensing each user for shared workstations or kiosks.
• Use the Base/Attach model to minimize costs: Always check if users with multiple app needs can use an attach license. Avoid buying two full licenses for one user without exploring the attachment options. Implement an internal review so that whenever a second Dynamics app is assigned to a user, it’s assigned as an attached license if eligible.
• Plan for capacity needs: Review the capacity entitlements with your licenses (storage, marketing contacts, etc.) and monitor usage. If you approach limits, budget for additional capacity, or clean up data to stay within the included amounts. For any capacity-based licenses (like Marketing), right-size your purchase (e.g., number of contact packs) based on actual usage and scale up gradually to avoid over-buying.
• Stay informed on model changes: Watch Microsoft announcements for changes in consumption-based licensing. Prepare your team for new models (like storage-based licensing for ERP environments) by training and updating internal processes. Early awareness will allow you to adjust your license allocations or contracts proactively rather than reactively.

Read Common Dynamics 365 Licensing Mistakes.

Core Dynamics 365 Modules and Their Licensing Structures

One of the challenges in Dynamics 365 licensing is understanding how each core module (application) is licensed. Dynamics 365 is a modular suite – each app addresses specific business needs and is licensed separately, but they can be combined for a comprehensive solution.

Licensing professionals should familiarize themselves with the main modules, their available editions, and how Microsoft charges for them:

• Dynamics 365 Sales – Licensed per user. This module is a customer relationship management (CRM) app focused on sales force automation (managing leads, opportunities, accounts, contacts, etc.). It comes in two main editions: Sales Professional (a lower-cost, streamlined version with core sales functionality) and Sales Enterprise (a full-featured version with more advanced capabilities like forecasting, customizations, and in some cases AI features). Dynamics 365 Sales Premium also bundles Sales Enterprise with advanced AI-driven capabilities (like deeper forecasting AI or the Microsoft Viva Sales integration). Sales Enterprise is often used as a Base license for CRM scenarios, and users can attach other CRM apps as needed.
• Dynamics 365 Customer Service – Licensed per user. A CRM application for customer support and service case management. Like Sales, it has Professional and Enterprise editions. The Enterprise edition includes more advanced case management, customization, and omnichannel capabilities. Microsoft has also introduced a Customer Service Premium offering, which includes digital contact center capabilities (blending in AI, chat, and voice features). Customer Service is often paired with Sales for a 360° customer view, and Microsoft allows one to be a base and the other an add-on to reduce total cost for dual-role users.
• Dynamics 365 Field Service – Licensed per user or device. This module supports dispatching field technicians, managing work orders, scheduling resources, and maintaining assets in the field. Field Service is user-based (similar price point as Sales/Customer Service for a full user). In addition, Field Service offers a Device license option, which is ideal for scenarios like a shared tablet used by multiple field agents in shifts or a service kiosk. A user with a Field Service license can also attach Sales or Customer Service if they need those capabilities, and vice versa, since Field Service is in the Customer Engagement (CRM) family of apps.
• Dynamics 365 Marketing / Customer Insights – Journeys – Licensed per tenant (capacity-based). Unlike the above apps, Marketing is not priced per user. It is a tenant-wide license that enables marketing automation, email campaigns, customer journey orchestration, and event management. A Marketing license typically includes a certain number of marketing contacts and monthly email interactions. All users in the organization who need to work on marketing campaigns can be given access without individual license costs. If the included contact limit is exceeded, you purchase additional contact packs. Marketing also has an “attach” concept: organizations with at least 10 users of another qualifying Dynamics 365 app (like Sales or Customer Service) can buy Marketing at a discounted price (since you’ve shown commitment to the platform). Customer Insights – Journeys is the evolved marketing automation capability and follows a similar model. The key is that licensing cost for Marketing/Insights is driven by volume of contacts and usage, not by seat count.
• Dynamics 365 Finance – Licensed per user. This core ERP module handles general ledger, accounts payable/receivable, project accounting, and other enterprise finance functions. It was formerly part of Dynamics AX (on-premises) and is now cloud-based. Dynamics 365 Finance is one of the higher-priced user licenses in the suite, reflecting its deep functionality. It falls under the “Unified Operations” category (ERP), meaning it can serve as a Base license for ERP and allow other ERP apps (like Supply Chain) as attach licenses for the same user. Each Finance user needs a license; there’s no device license for Finance (since Finance roles are usually named users).
• Dynamics 365 Supply Chain Management (SCM) – Licensed per user. Another ERP module, focused on supply chain and operations: inventory, manufacturing, distribution, warehousing, etc. SCM (previously part of Dynamics AX) is also priced similarly to Finance and is considered an “attachable” pair with Finance. Many users in an operations department might need both Finance and SCM functionality. Microsoft’s base/attach rule for ERP allows a user with either Finance or SCM as their base license to get the other as an attachment at a reduced price, dramatically lowering the combined cost for dual-role users. If one is based, SCM can also be attached to other ERP apps like Commerce or Project Operations.
• Dynamics 365 Commerce – Licensed per user. This module covers retail and e-commerce operations, point-of-sale, and channel management. Commerce is similarly priced in the Unified Operations family (ERP side). Retail scenarios often mix Commerce user licenses with Device licenses for point-of-sale registers. For example, a retail store manager might have a Commerce user license, while each register in the store runs under a Commerce Device license for the front-line workers. Commerce, Finance, and SCM share the base/attach compatibility (one can be base, others attach).
• Dynamics 365 Human Resources – Licensed per user. This module (which evolved from the HR component of Dynamics AX and was briefly a separate application, now merging with Finance in functionality) handles core HR processes like employee records, benefits, and leave management. It’s usually licensed per user (HR staff or managers using the system). HR is also considered part of the ERP suite for licensing purposes, so it can attach to or detach from other ERP apps if needed. Note that Microsoft has been rolling HR features into the Finance and Operations infrastructure, so keep an eye on licensing if it changes (it may become more integrated as an attached module rather than a standalone).
• Dynamics 365 Project Operations – Licensed per user. This app combines project management and accounting capabilities (including what used to be Dynamics Project Service Automation). It exists in two forms: one that aligns more with the CRM family (for project sales and resource management) and one that aligns with ERP (for project accounting and management). Microsoft’s licensing guide specially treats project operations: it can serve as a base or an attachment depending on the scenario. Notably, if a user already has a Customer Engagement app (like Sales), they could attach Project Operations (or vice versa) at a lower cost. Project Operations also has a reduced attached price when added to a finance license for those doing project accounting. Ensuring you apply the right base vs attach pricing for Project Ops is important since it intersects both CRM and ERP licensing realms.
• Dynamics 365 Business Central – Licensed per user (with a different model). Business Central is Microsoft’s ERP solution for small and mid-sized businesses. While part of the Dynamics family, its licensing structure is separate from the above modules. Business Central online offers two editions: Essentials and Premium, each licensed per user per month, and a Team Member license for light users. Business Central does not use the base/attach model (its users are typically just in that product), and it is often sold through partners via CSP. If your organization uses Business Central, manage it separately from the “Dynamics 365 Enterprise” modules discussed above. (However, integration and Power Platform considerations still apply.)

All these modules run on a common platform (with Dataverse as the data backbone), and Microsoft’s licensing allows mixing them to fit your organization. The base license + attach license model is a critical cost-saving mechanism when users require multiple modules.

For example, if a sales rep also handles support cases, you might buy Sales Enterprise as their base license and add Customer Service as an add-on for a small incremental cost – far cheaper than two full licenses.

On the ERP side, if a supply chain manager needs Finance and SCM, license one as a base and attach the second. Microsoft sets rules on which apps can be attached to which (generally, any within the Customer Engagement CRM group can be attached, and likewise within the Unified Operations ERP group; you cannot attach an ERP app to a CRM base or vice versa—a user needing both CRM and ERP full apps would need two bases).

It’s also important to choose the right edition (Pro vs Enterprise) of an app to meet functionality needs;. In contrast, Professional editions save cost but have limitations that might be too restrictive as the business grows or if advanced customization is required.

Recommendations for Module Licensing:

• Align licenses with roles and modules used: Do a role-by-role analysis of which Dynamics 365 apps each user needs. Avoid buying broad bundles if only a subset of users requires certain modules. For instance, license your sales team only for Dynamics 365 Sales, your support team for Customer Service, etc. If only a small team needs a particular app (like Marketing or Project Operations), purchase the minimum required rather than licensing everyone.
• Leverage discounted attach licenses: When users require multiple modules, always designate one module as the Base license (the highest-cost app or whichever they use most) and add other modules as Attach licenses. This can reduce combined licensing costs by 50% or more for multi-app users. Implement checks in your license assignment process to consolidate users’ licenses and ensure no one is accidentally assigned two full licenses that could have been base+attach.
• Choose editions strategically: If a module has tiered editions (Professional vs Enterprise, or different tiers like Sales Premium), evaluate the feature differences carefully. It might be tempting to choose a cheaper edition, but lacking critical features could force a mid-term switch or additional module purchases. When in doubt (especially for growing usage or heavy customization requirements), lean toward the Enterprise tier to “future-proof” your deployment. Conversely, don’t over-pay for higher tiers if the extra features aren’t needed – match the edition to the user’s functionality needs.
• Monitor usage of each module: Use admin center reports to see how many users actively use each Dynamics app. If you bought 50 Sales Enterprise licenses but only 30 salespeople regularly use the system, consider reallocating or reducing licenses at renewal. Similarly, ensure any module licensed per tenant (like Marketing) is being utilized; if not, you might scale down contact volume or even remove that subscription if it’s not delivering value.
• Keep module licensing guides handy: Microsoft’s official licensing guide for Dynamics 365 (updated frequently) contains detailed appendices on each module’s specifics – refer to these when designing or adjusting your licensing. They clarify rules like which modules can be attached to which base, minimum purchase requirements (e.g., Marketing attach requires 10 qualifying users), and license-specific use rights. Staying informed will help avoid mis-licensing a user for a module they’re not entitled to or missing an opportunity to optimize.

Read Negotiating Dynamics 365 Volume Discounts.

License Bundling and Power Platform Implications

Microsoft Dynamics 365 is tightly integrated with the Microsoft Power Platform (Power Apps, Power Automate, Power BI, Power Pages), and licensing one often confers rights or obligations that affect the other. Additionally, Microsoft provides bundling options and use rights that savvy organizations can use.

This section covers how Dynamics 365 licenses bundle with Power Platform capabilities, and how to plan for those intersections:

• Power Platform Use Rights: Most Dynamics 365 user licenses include the right to use the underlying Power Platform (specifically Microsoft Power Apps and Power Automate) to customize or extend Dynamics. For example, a user with a Dynamics 365 Sales or Customer Service license can access the Dataverse environment for that app and build canvas or model-driven Power Apps connected to that data, without needing a separate Power Apps license, so long as it supports the Dynamics 365 application. Similarly, Dynamics licenses allow Power Automate flows that interact with Dynamics 365 data. This means you can often deliver custom functionality (like a lightweight app for field staff or an automated workflow) under the umbrella of your existing D365 licenses. However, there are limits: these include rights typically cover custom applications within the same environment as the Dynamics 365 app and using standard connectors. You may need additional standalone Power Apps licenses if you build entirely separate business applications on the Power Platform (not just extending Dynamics).
• Dynamics 365 Attach vs. Power Apps License: Sometimes organizations face a choice: to give a user some functionality, is it cheaper to license them for another Dynamics 365 module (possibly as an attach) or to build a custom solution on Power Apps? For instance, instead of licensing a user for the full Dynamics 365 Customer Service app, you might create a simpler ticketing app using Power Apps if their needs are basic. The Power Platform licensing (Per App or Per User) might cost less than a Dynamics module. On the other hand, building and maintaining custom apps have their costs. The key is to recognize that a Dynamics license is not the only way to give someone business functionality on the Dataverse platform – you could mix Dynamics and Power Apps licenses in one environment. Each Dynamics 365 full user license also counts as a Power Apps per-user license for that environment. For heavy internal development, consider using Power Platform licenses for non-core users rather than buying more Dynamics 365 module licenses than necessary.
• Power BI and Reporting: Dynamics 365 often requires robust reporting, and Power BI is a common tool for that. Power BI licensing is separate – a Dynamics 365 license does not automatically include Power BI Pro. If you embed Power BI dashboards into Dynamics 365 or have users analyzing Dynamics data in Power BI, those users may need a Power BI Pro license (or the organization needs Power BI Premium capacity). Some bundled analytics within Dynamics (e.g., Customer Insights or built-in charts) don’t require extra licensing. Still, any broad use of Power BI will invoke M365/Power BI license considerations. Plan for this in your budgeting – Dynamics 365 and M365 licensing often go hand-in-hand when users expect an integrated experience.
• Power Platform Capacity Add-Ons: Because Dynamics 365 runs on Dataverse, the data storage and capacity model is unified with Power Platform. Microsoft grants each Dynamics 365 tenant a default storage capacity (database, file, log) based on the number and type of Dynamics 365 licenses purchased. If your Dynamics 365 solution stores a lot of data or files (for example, a large number of attachments in cases or a big transactional volume in Finance), you might exceed these storage limits. Additional storage is licensed as a Power Platform add-on (e.g., purchasing extra GBs of Dataverse storage). Similarly, if you leverage Power Pages (formerly Power Apps Portals) for external users interacting with D365 data, those are licensed by capacity (number of page views or logins per month). Understanding these potential add-on costs is important so a Dynamics implementation doesn’t incur unexpected charges. Bundle negotiations sometimes include extra capacity, so proactive planning can save money.
• License Bundles and Promotions: Microsoft sometimes offers bundles that package Dynamics 365 with related products. For example, there have been offers combining Dynamics 365 and Office 365 for small businesses, or promotions that bundle Teams with Dynamics for remote collaboration. Another kind of bundling is through agreements: in Enterprise Agreements or large deals, Microsoft might bundle additional support or add-on licenses at a discount (including some Power Apps capacity or several Power BI Pro seats when you buy Dynamics licenses). Keep an eye out for such promotions, especially new cross-product bundles that align with Microsoft’s strategic pushes (recently, for instance, emphasizing Teams integration with Dynamics or including limited AI credits/Copilot features with certain Dynamics license tiers).

Recommendations for Bundling and Power Platform:

• Maximize built-in Power Apps rights: Use the customization and extension rights with Dynamics 365 licenses. Train your Dynamics administrators and power users on Power Platform tools so they can build needed tweaks or small apps without requiring new licenses. This can extend Dynamics to more users (via Team Member access or by surfacing data in Teams/SharePoint) without incurring additional per-user costs.
• Plan Power Platform and Dynamics together: When designing solutions, consider whether a requirement truly needs a full Dynamics 365 module or if a Power Platform solution would suffice. For a marginal use case, giving a user a Power Apps license might be cheaper than a full Dynamics license, or vice versa if the attached license is cheap. Evaluate options and choose the licensing approach that meets requirements at the lowest cost.
• Monitor capacity usage: Regularly check your Dataverse capacity (storage, API calls, etc.) in the Power Platform Admin Center. If usage grows, engage Microsoft or your partner early about adding capacity or optimizing data retention. It’s better to include needed extra storage or portal capacity in a contract (possibly at a negotiated rate) than to scramble later and pay list price. Also, unnecessary data should be periodically archived or purged to stay within the included limits.
• Leverage integration with Teams (at no extra cost): Microsoft allows Dynamics 365 data to be accessed within Microsoft Teams by users who don’t have a Dynamics license, subject to certain limitations and invitations from licensed users. This “license-free” access via Teams can be a great way to share CRM data with broader staff (e.g., allowing a finance user to view a sales record) without requiring everyone to have a full D365 license. Ensure your administrators know how to manage these access policies securely. This can improve collaboration and adoption of Dynamics data across the company without additional licensing fees.
• Ask about bundle deals: When negotiating with Microsoft or a reseller, inquire if any bundled offers or promotions are relevant to your Dynamics 365 purchase. For instance, if you’re buying many Dynamics licenses, can you get some Power BI or Teams audio-conferencing thrown in? Or if Microsoft is promoting a new feature (like AI Copilot), is a trial or bundle available? These can add value or reduce the need for separate licenses for related tools.

Read Dynamics 365 Licensing Metrics and Models.

CSP vs. Enterprise Agreement vs. MCA: Choosing the Right Procurement Model

Organizations can purchase Dynamics 365 licenses through different channels, primarily the Cloud Solution Provider (CSP) program, an Enterprise Agreement (EA), or the newer Microsoft Customer Agreement (MCA) route (which often overlaps with direct web purchases or new commerce experiences).

Each licensing procurement model has its pricing, flexibility, and management implications. IT asset managers should evaluate which model aligns best with their organization’s size, purchasing preferences, and need for flexibility:

• Enterprise Agreement (EA) – A volume licensing contract typically for large organizations (historically 500+ users or devices minimum). An EA is a three-year commitment covering a broad set of Microsoft products (it can include Dynamics 365, Microsoft 365, Azure, etc., under one agreement). Key characteristics:
  • Pricing & Discounts: EAs provide volume-based discounts. Pricing tiers mean the more licenses you commit to, the lower the unit price. Large enterprises can get substantial discounts off list prices for Dynamics 365 via an EA, especially if bundling it with other Microsoft products. Software Assurance (SA) is usually included, granting rights to new version upgrades and other benefits during the term.
  • True-up and True-down: With an EA, you typically count licenses once per year. If your user count grows, you do an annual “true-up” to add the necessary licenses (back-paying for the year). Reducing licenses (true-down) generally isn’t allowed mid-term – you commit to a baseline for the year, and reductions usually can only be made at the renewal (end of the 3-year term). This means an EA favors stable or growing organizations, but can be less flexible if you need to scale down.
  • Enterprise-wide coverage: An EA often requires covering all “qualified users” with certain products. For example, if you include Dynamics 365 in the EA, Microsoft might expect you to license all users who use CRM/ERP in the organization through the EA. The benefit is simplified management and standardized use rights, but the downside is that you might end up licensing some marginal users to meet the coverage requirement.
  • Benefits: In addition to price locks and SA, EAs provide centralized management, a dedicated Microsoft account team, and predictable budgeting (payments are typically annual). However, note that Microsoft has been evolving its EA strategy—by 2024/2025, they are steering some mid-sized customers away from EAs toward CSP or MCA if they don’t meet certain thresholds (e.g., Microsoft may not renew EAs for organizations under a certain size, pushing them to cloud subscriptions instead).
• Cloud Solution Provider (CSP) – A program where you buy subscriptions via a Microsoft partner (reseller). CSP is very common for Dynamics 365, especially for small and mid-sized firms, but even some large enterprises use CSP for flexibility. Key characteristics:
  • Flexibility: CSP operates on a subscription model (monthly or annual). You can increase or decrease license counts more fluidly. For example, you can add a few Dynamics 365 Sales users one month and remove a few the next month if needs change (though yearly term options also exist under CSP’s “new commerce”, where you commit for a year for a better price, or go month-to-month for full flexibility at a slight premium).
  • Partner value: In CSP, a partner manages the sale and often provides value-added services like support or licensing advice. The partner can handle the billing (possibly consolidate various subscriptions) and may offer their discounts or promotions. CSP is often the only route for certain small-business offers or short-term promotions.
  • Pricing: CSP pricing is usually based on Microsoft’s standard price list (with maybe minor partner discounts). It might be slightly higher per unit than a large EA could negotiate, but the trade-off is that you’re not locked in long-term. CSP also allows for the easy mixing and matching of subscriptions. You can have one Dynamics module on a monthly term and another on an annual term, etc., via the partner’s portal.
  • No enterprise-wide requirement: You can buy exactly the number of licenses you need, whenever you need, without an all-or-nothing coverage. This is great for precision and avoiding shelfware. However, if not managed well, it could lead to fragmented purchasing if multiple departments go through different partners.
  • Microsoft Customer Agreement (Direct)* – This is similar to CSP because it’s a subscription model procured directly from Microsoft (usually via the Microsoft 365 admin center or Azure portal). Microsoft’s Customer Agreement (MCA) is the framework for direct purchases in the cloud era. For Dynamics 365, an organization can go online, sign the MCA, and buy D365 subscriptions directly on a credit card or invoice. This is essentially Microsoft acting as the CSP. The characteristics (flexibility, pricing at list, monthly/annual terms) are similar to CSP, but you don’t have a partner intermediary. MCA is convenient for small quantities or trial phases, but larger clients often still use CSP partners or EAs for better account management.
• Hybrid Approaches and Transitions: Many organizations might start on CSP or direct (MCA) and later move to an Enterprise Agreement as they scale up and want consolidated contracts (or vice versa: an organization might leave an EA at end-of-term and move to CSP if they want more flexibility or if Microsoft no longer offers them an EA due to size). It’s also possible to have an EA for some products (like M365 and Windows) and buy others via CSP. However, double-dipping can complicate management – generally, consolidating your Dynamics 365 procurement in one model at a time is simpler for tracking compliance and spend.

To summarize the differences, here is a comparison:

No model is inherently “better” – it depends on the organization’s needs. A global enterprise likely values the commercial advantages of an EA, whereas a fast-scaling startup or a mid-size firm might prefer CSP/MCA for agility.

Some governments or regulated industries also have specific channels (e.g., GCC or special licensing programs), but those ultimately mirror EA or CSP structures with slight variations.

Recommendations for Procurement Strategy:

• Choose the model that fits your organization’s size and agility needs: If you have several thousand users and a steady, enterprise-wide IT plan, an Enterprise Agreement can lock in pricing and simplify management across Microsoft’s catalog. If you are smaller or anticipate fluctuation in user counts, CSP (through a trusted partner) or direct MCA gives you more control to scale licenses up or down. Don’t feel compelled to sign an EA if it doesn’t suit your size – Microsoft’s newer approach often favors cloud subscriptions for mid-market customers.
• Leverage partner expertise (if using CSP): A good licensing partner can help optimize your license mix and alert you to changes. Ensure your CSP partner has Microsoft licensing competency. They might assist with tasks like quarterly usage reviews, recommendations for cost savings, or bundling other services. Negotiate value-added services from the partner since the pricing is often standard; their guidance can compensate for not having an EA’s direct Microsoft support.
• Negotiate EAs carefully: If you enter an EA for Dynamics 365, prepare for negotiation. Use your current spend and any competitive context to seek discounts. Ask for price protections beyond year 3 if possible, and include future needs (like additional modules or capacity) in the negotiation to get better rates up front. Also, clarify the terms for adding Dynamics licenses mid-term (the annual true-up process) so you can budget correctly.
• Stay informed on Microsoft’s contract changes: As of 2024, Microsoft has begun phasing out some smaller EAs. If you’re up for renewal and have under the threshold, Microsoft might offer an MCA-E (enterprise-tailored MCA) or ask you to move to CSP. Be prepared by understanding those alternatives; you may want to pilot moving a subset to CSP to get comfortable. Always review your agreements at least 6 months before renewal to avoid surprises and to evaluate if switching models could save money or suit your strategy better.
• Consolidate where practical: Avoid different departments buying Dynamics 365 licenses separately in siloed agreements (shadow IT purchasing via credit card, etc.). This can lead to inconsistent terms and even compliance gaps. Aim for a single procurement route for Dynamics, making tracking licenses and optimizing usage much easier. If you have a mix (e.g., an EA but need to use CSP for certain add-ons), maintain a central inventory and governance process.

Read Dynamics 365 Licensing: Cloud vs On-premises.

Managing Licensing Transitions: From On-Premises to Cloud

Many organizations are transitioning from legacy on-premises Dynamics products (such as Dynamics CRM 2016, Dynamics AX, NAV, or GP) to the cloud-based Dynamics 365 suite. These transitions create unique licensing challenges and opportunities.

CIOs and ITAM professionals must manage overlapping licenses, take advantage of transition incentives, and avoid compliance lapses during the move.

Key considerations for on-premises to cloud transitions include:

• Dual Use Rights and Bridge Licensing: Microsoft typically grants dual-use rights for Dynamics 365 licenses, meaning a user licensed for the cloud service is entitled to run the equivalent on-premises software. For example, suppose you have Dynamics 365 Finance (cloud) user licenses. In that case, you can also deploy Dynamics 365 Finance + Operations Server locally. Those same users can access it, without buying separate on-prem CALs, as long as your cloud subscription is active. This is useful in a phased migration – you might run systems in parallel. However, dual-use rights require active subscription or Software Assurance, and you must not exceed the entitled count (e.g., if you have 50 cloud licenses, only 50 named users can use the on-prem system under those rights). Plan your cutover so users are only counted once between the two environments to stay compliant.
• From SA (Software Assurance) License Migration: Organizations with existing on-prem Dynamics licenses under Software Assurance have historically been offered discounted transition SKUs when moving to Dynamics 365 cloud. These often appear as “From SA” pricing or migration SKUs. For example, if you owned Dynamics CRM on-prem CALs with SA, Microsoft allowed a move to Dynamics 365 Customer Engagement cloud licenses at a reduced subscription price. Similarly, AX or NAV customers with SA could transition to Finance, SCM, or Business Central with credits for their prior investment. As of 2024, Microsoft has formalized promotions like Bridge to the Cloud for certain products (notably Business Central, where on-prem NAV/GP customers get a 40% discount on BC cloud licenses for 3 years when they commit to migrate). Always check with Microsoft or your partner for any active “transition offers” – they can significantly lower the cost during the migration period.
• Coexistence and Phased Deployment: A practical migration might involve running on-premises and cloud systems side by side for some time (for data migration, user training, or rolling migration by business unit). During this coexistence, be mindful of licensing both environments. Dual-use rights cover the scenario where your cloud license lets you run on-prem software. But if you continue to use your on-prem system for users not yet moved to the cloud and have some users on the cloud, you may need to maintain both license sets. Microsoft’s Bridge promotions usually allow concurrent use (e.g., the discount period assumes you’ll run both and gradually move fully to the cloud). Use the overlap period efficiently – it’s often time-bound (like the 3-year promo).
• Retiring On-Premises Licenses: Once fully migrated to the cloud, decide what to do with your old licenses. In some cases, you may keep them for fallback (if you have perpetual licenses, you own them, though without SA, you can’t upgrade them). In many cases, it’s best to eliminate maintenance costs on legacy systems. If you had an EA or annual maintenance for on-prem Dynamics, coordinate to end those payments as you ramp up the cloud subscriptions. Be cautious about terminating too early – ensure all critical functionality is live in Dynamics 365, and you won’t need to roll back. Also, ensure data and user access are fully moved over before turning off old licenses.
• Data Migration and Environments: Migrating historical data from on-prem to cloud is not directly a licensing issue, but it has licensing adjacencies. For instance, you might spin up extra non-production environments in Dynamics 365 (for testing migration, user acceptance, etc.). Note that your licenses include some sandbox environments (often 1 default sandbox per tenant). If you need more, those are additional licenses/capacity add-ons. Consider using Microsoft’s migration tools or partners who have licensing for migration environments. Also, if you keep the old system read-only for a while (for audit or reference), that on-prem server still needs a license – but if you moved all users off, perhaps an “external connector” or a minimal number of CALs could cover just IT admin access. Plan for how long, if at all, the old system will be accessible post-migration and ensure that’s covered either under dual use or remaining licenses.
• Cloud Subscription Alignment: When moving to the cloud, you might find that the bundle of functionality you had on-prem maps to multiple modules in Dynamics 365. For example, an old Dynamics AX implementation might have covered finance, supply chain, and retail in one, but now you need Finance, SCM, and Commerce licenses separately. This can be jarring in cost. Early in the project, do a license mapping exercise: what cloud licenses will each type of current user need? This informs the budget and also discussions with Microsoft. Often, Microsoft’s transition offers (discounts) are designed to offset this modularization cost increase, at least initially. Over time, once the transition period ends, be prepared for the full subscription costs and mitigate them by right-sizing (maybe not all users need every module that was turned on in the all-in-one on-prem system).

Recommendations for On-Prem to Cloud Transitions:

• Take advantage of transition discounts: Before buying any Dynamics 365 cloud licenses, verify if you qualify for Bridge to the Cloud promotions or “From SA” discounted licenses. Provide your Microsoft rep or partner with a list of your current on-prem licenses—they can identify the best conversion SKUs. Budgeting a migration is much easier with these discounts, and you can often secure them by committing to a timeline for cloud adoption.
• Maintain compliance during coexistence: Carefully track your user counts on both on-prem and cloud environments. If using dual-use rights, enforce that no more users are active on-prem than you have cloud licenses for. If you temporarily need extra on-prem users during migration, talk to Microsoft – sometimes they grant short-term accommodations if you’re on a path to the cloud. Avoid “license creep” where you forget to remove access for users who moved to the cloud but still poke around in the old system.
• Plan license switch-over timing: Align the ramp-down of on-prem licenses with the ramp-up of cloud. For instance, if your on-prem licenses renewal is due in June and you plan to be on cloud by December, try to negotiate pro-rated or short-term extensions for the on-prem side, or start the cloud subscriptions a bit earlier so that you aren’t caught in a gap. The goal is not to pay double for too long – some overlap is inevitable, but minimize the duration. Also, ensure any external users or integration service accounts are accounted for in the new model (they might have required an external connector on-prem; in the cloud, they may need a specific license or API entitlement).
• Use non-production licenses for testing: Leverage any sandbox entitlements with your cloud licenses to do migration trials. If you need more, consider using a trial tenant or working with a partner who can host a temporary environment. This can save you from buying extra licenses just for migration testing. Microsoft’s FastTrack or implementation partners sometimes provide limited-time environments for this purpose.
• Communicate changes to stakeholders: A licensing transition often accompanies a cost model change – communicate with finance and business units that, instead of occasional large capital expenses for upgrades, you’re moving to recurring subscription costs (which might hit OPEX budgets). Also, train your IT asset management team on the new portals and processes (e.g., moving from managing license keys and CALs to assigning users in the Microsoft 365 Admin Center). Good communication ensures everyone is prepared for the new operating method after the cloud go-live.

Optimizing Licensing Costs and Identifying Overspend

ITAM and licensing managers have an ongoing responsibility to ensure the company is not overpaying for Dynamics 365 licenses or wasting resources on underutilized subscriptions.

The flexible nature of cloud licensing can lead to creep (gradually increasing license counts or buying expensive licenses for users who don’t need them). Regular optimization efforts can yield significant savings and also prevent budget surprises.

Here are strategies to optimize costs and eliminate overspend:

• Conduct Regular License Audits: Review all assigned Dynamics 365 licenses against actual usage at least quarterly. Microsoft’s admin portals provide activity reports – for example, you can see the last login date for Dynamics 365 users or how many records a user modified. Identify licenses that haven’t been used in, say, 60+ days. Those might be candidates to remove or reassign. Often, people leave the company or change roles, and licenses remain assigned (aka “shelfware”). Develop a process with HR so that when employees exit or transfer, ITAM reclaims their licenses promptly. By keeping license assignments tight, you only pay for active users.
• Rightsize User License Types: Overspend often happens when users have a more powerful (and costly) license than necessary. For example, every user should be given a full Sales Enterprise license, when perhaps some only need the $10 Team Member license to look up client data occasionally. Or a warehouse worker who just updates inventory status – they might be fine with a Team Member license instead of a full Supply Chain license. Review roles and see if any can be downgraded:
  • Team Member licenses cost a fraction of full licenses. If a user’s usage is read-heavy with light data input, consider assigning them a Team Member license and removing their full license. Just be careful to verify they don’t need functionality that Team Members don’t allow (Microsoft has specific limits on what entities and actions Team Members can do – e.g., they cannot create sales orders or opportunities).
  • Similarly, check if device licenses could replace a cluster of user licenses. In a retail scenario, instead of 5 users with Commerce licenses on different shifts at one register, buy 1 Commerce Device license for that register account.
• Eliminate Redundant or Duplicate Licenses: Sometimes through organizational silos, a single user might accidentally get two separate Dynamics licenses that cover overlapping functionality. For instance, Sales and Customer Service are both assigned as full licenses to the same person, when one could have been attached, effectively paying double. Use a software asset management tool or a simple spreadsheet to list each user and all Dynamics licenses they have. If anyone has more than one full license in the same category (CRM or ERP), that’s a red flag. Consolidate those into base/attach licensing to reduce cost. Microsoft will generally allow a mid-term adjustment if you discover you’ve been incorrectly licensing something (through your partner or at renewal, you can switch one of the licenses to an attached SKU).
• Monitor for Unused Modules or Environments: Overspend isn’t just at the user level; it can also happen at an environment or module level. You might be paying for a module that few people use. For example, perhaps you purchased a 20 Marketing contacts add-on or a Customer Insights license but did not deploy that solution fully. Those subscriptions might quietly renew without anyone noticing, costing money. Maintain an inventory of all Dynamics 365-related subscriptions (including add-ons) and have business owners identified for each. Ahead of renewals (annually or whenever), validate with those owners if the tool is still needed at the current capacity. If not, reduce the quantity or cancel it. This governance prevents inertia from leading to unnecessary spending.
• Use the Base/Attach Model Aggressively: As emphasized earlier, the base/attach model is one of the best cost optimizations Microsoft has given. Ensure new deployments are architected to take advantage of it. For example, if launching Dynamics 365 for a new set of users who need multiple apps, assign the highest-priced app as the base across the group and everything else as an attachment. Sometimes it might mean assigning a particular module as base even if another module is the one they use slightly more, purely because it’s more cost-effective (e.g., if one app is significantly more expensive, use it as base so the cheaper one can be attached at an even lower cost). Keep an eye on Microsoft’s pricing changes over time – if they alter attachment rules or prices, update your optimization approach accordingly.
• Track Storage and Add-on Consumption: As part of cost optimization, watch the consumption-based aspects too. If your storage usage is growing rapidly, purchasing additional capacity preemptively (maybe at a discount via an annual purchase) might be more cost-effective than paying overage or having performance issues. Conversely, if you’re paying for 100GB of extra storage and only using 20GB, scale that down at renewal. The same applies to things like Marketing contacts – if you bought a 1 million contacts pack and only use 100k, reduce your tier. Optimizing these add-ons ensures you’re not leaving money on the table.
• Total Cost of Ownership (TCO) View: Sometimes optimizing Dynamics 365 spend means looking beyond just license unit prices. For example, if you are paying for a bunch of separate point solutions and find that a Dynamics module could replace them, it might be cost-effective to invest in that Dynamics app (even if the license cost goes up) and retire the other systems. Or vice versa – perhaps you can remove a customization that required extra licenses. Regularly compute the TCO of your Dynamics 365 environment: licensing, support, implementation, and integrations. Use that to justify license optimizations (e.g., “if we downgrade these 50 users to Team Member, we save X per year, which can fund additional training or a needed plugin”). This holistic approach ensures optimization efforts align with business value, not just cutting costs blindly.

Recommendations for Cost Optimization:

• Implement a continuous license review process: Don’t treat licensing as a one-time setup. Assign someone (or a team) the task of quarterly license audits for Dynamics 365. They should use tools or scripts to identify unused licenses, duplicated assignments, or users who can be downgraded. Make this a routine like financial audits – the savings over time can be substantial.
• Engage with business units about usage: Sometimes, IT might not realize a department stopped using a feature. Regularly meet with Dynamics module owners (sales ops, customer service managers, etc.) to review if the license count matches actual team size and usage. If a sales region was downsized from 100 to 50 people, ensure the licenses drop accordingly. Foster a culture where managers inform ITAM when users leave or no longer need certain access.
• Use reports and analytics: Leverage the Office 365/Dynamics admin center reports or more advanced analytics to track user activity. If Microsoft introduces new analytics (like a License utilization dashboard or integration with Power BI for license usage), adopt them. Visibility is key to optimization.
• Educate and enforce license policies: Ensure your IT helpdesk and provisioning teams know the various license types and costs. For example, if someone requests access to Dynamics 365, have a policy to evaluate if they can be a Team Member or must be a full user, instead of automatically giving everyone full licenses. Perhaps create an internal catalog: “If the user only needs to view or approve data, assign a Team Member; if a user is in the sales department doing XYZ, assign Sales Enterprise,” etc. Having these guidelines prevents over-licensing at the initial assignment.
• Keep an eye on Microsoft’s roadmap: Cost optimization sometimes involves timing. If you know Microsoft is raising prices (as happened in 2024 for many Dynamics licenses), consider renewing or extending licenses before the increase or exploring multi-year deals to lock current prices. On the other hand, if new cheaper options are coming (e.g., a new lower-tier license or promo), you might wait to take advantage. Staying informed through Microsoft announcements or licensing expert blogs helps you anticipate and react to cost changes.

Common Compliance Risks and Audit Pitfalls

While optimizing costs is one side of the coin, ensuring license compliance is the other. Non-compliance with Microsoft Dynamics 365 licensing terms can lead to audit findings, back-billed fees, or forced purchases.

Dynamics 365, like any enterprise software, has specific rules and constraints. It’s important to avoid common pitfalls that can put your organization out of compliance or in a risky position during an audit.

Here are typical risk areas and how to mitigate them:

• Misuse of “Team Member” Licenses: Microsoft strictly uses low-cost Team Member licenses. These licenses permit very limited read/write actions across Dynamics 365 apps. A common compliance issue is an organization assigning Team Member licenses to users who perform activities requiring a full license. For example, if a Team Member user starts creating sales opportunities or editing accounts extensively, that’s beyond the allowed use. Microsoft has even implemented technical enforcement: special “Team Member” app modules that restrict what those users can do. If someone circumvents this (say by giving a Team Member user elevated security roles inadvertently), it could be flagged as mis-licensing. Avoidance: Educate admins on Team Member restrictions. Periodically run checks or reports on what Team Member users are doing in the system (some admin logs can show if they attempted prohibited actions). If Microsoft audits your Dynamics usage, they may ask for evidence that Team Member users are not engaging in unlicensed usage – having internal audits helps demonstrate diligence.
• Unassigned or Unlicensed Users Accessing the System: Dynamics 365 online requires you to assign a license to a user in Office 365/Azure AD before they can access an environment, so it’s generally self-policing. However, an area to watch is integration accounts or service accounts. Suppose you have a service (like a middleware or a custom portal) that uses a generic account to access Dynamics 365 data via the API. In that case, that account must have an appropriate license (or use a special non-interactive API license if Microsoft provides one). A compliance pitfall is using an account without a license to push or pull data, which might work if not blocked, but violates terms. Similarly, external users (like a partner or customer) interacting with your Dynamics 365 (for instance, through an integration or if given a login) could require licensing unless covered by a specific external use allowance (generally, internal systems like CRM require licenses for any internal user; separate rules or a portal license might cover external users viewing their info). Avoidance: Inventory all accounts with access to Dynamics – ensure each is licensed or falls under an allowed exception. Microsoft’s licensing guide outlines when an external user can access without a license (typically if it’s for their customer self-service and done via a portal that you license by capacity). Don’t let generic accounts slip through the cracks.
• Multiplexing and Indirect Access: Microsoft’s licensing terms include the concept of multiplexing – if users access the Dynamics system indirectly through another interface, they still need licenses. A classic example: you set up a separate web portal or a Power BI report that pulls data from Dynamics 365. If an internal employee views or interacts with that data and it’s live from Dynamics, Microsoft considers that a required license (the user indirectly uses Dynamics functionality). An audit pitfall is assuming that because someone isn’t directly logging into the Dynamics 365 UI, they don’t need a license. Avoidance: If you build any system or integration on top of Dynamics data, treat it as an extension of Dynamics. Ensure that any internal user consuming data or functionality that originates from Dynamics 365 is accounted for with at least a Team Member license (if not a full license, depending on what the data is). The only exception is public info or truly read-only scenarios for external users. Document your integrations and who uses them, so you can justify your licensing counts.
• Environment Misuse (Production vs. Non-Production): In Cloud Dynamics 365, you get production and non-production instances. Compliance issues can arise if you use a free trial environment or a developer instance for actual business work without proper licenses. Microsoft allows certain non-production usage under specific licenses (for example, if you have a Volume Licensing agreement, you might get a dev instance via Power Apps Developer Plan, etc., but that’s not for production data). Avoidance: Clearly distinguish your prod and sandbox environments. Don’t run live users on what should be a test environment beyond short-term testing. Also, ensure each environment’s admin settings enforce that only licensed users are present (the admin center will flag unlicensed users if they somehow appear). If using Dynamics 365 on-premises in a hybrid environment, remember that each environment (server) might require a server license unless dual-use rights and proper CALs cover it.
• License Reassignment Violations: Microsoft allows reassigning a license from one user to another (for example, if an employee leaves, you can assign their Dynamics 365 license to their replacement). However, the rules state that you cannot frequently rotate licenses among active users to avoid buying proper licenses. The formal rule is that a license can be reallocated once every 90 days, except for permanent personnel changes. An audit might catch if, for instance, a call center of 50 agents shares 30 licenses by swapping them every week – that’s not allowed. Avoidance: Ensure each active user has a dedicated license. Do not try to save money by doing manual round-robin assignments. If you have temporary staff, it’s acceptable to reassign licenses as people leave and new ones join, just not to concurrently reuse one license for two people in the same period. Keep records of license assignment changes (the admin audit log in Office 365 can help) to show you’ve followed the 90-day rule if ever questioned.
• Staying on Legacy or Deprecated Plans: Microsoft evolves its licensing models; older plans get grandfathered but eventually phased out. For example, before 2019, Microsoft sold Dynamics 365 as bundled plans (Plan 1, Plan 2, etc.). If a company hasn’t updated its agreement, it might still be on an older SKU that Microsoft expects to transition off. If you don’t proactively transition when required, you could inadvertently use licenses that are no longer sold or supported, leading to compliance confusion. Also, old plans may not cover new features or have different entitlements. Avoidance: Regularly review your license SKU names and compare with the latest price list or licensing guide. Contact Microsoft or your partner to discuss moving to the current model if you see anything labeled “grandfathered” or an old plan name. This will ensure you remain compliant with current rules and possibly take advantage of the attached pricing, which old plans didn’t offer.
• Audits and True-ups: While not a “pitfall” per se, note that Microsoft can audit your compliance. They often initiate a Software Asset Management (SAM) review first, which is a softer approach, asking you to self-assess your license position. If they find issues, it can escalate. A particular risk is if you have far more users in the system than you have licenses for (which might happen if the license assignment process wasn’t enforced strictly or if using on-premises/hybrid, where user counts aren’t system-enforced). Avoidance: Maintain an internal license ledger – a document or system that lists how many licenses of each type you have versus how many users or usage metrics are consuming those licenses. This internal licensing position should be reviewed and signed off on periodically (perhaps by internal audit or IT governance). That way, if Microsoft comes knocking, you can confidently demonstrate control over your licensing, minimizing the chance of penalties.

Recommendations to Avoid Compliance Risks:

• Train administrators on licensing rules: Ensure that those provisioning users and managing Dynamics 365 environments understand the dos and don’ts (Team Member limits, device license scenarios, external user policies, etc.). Provide them with a quick reference guide. Many compliance issues are accidental, and admin training can prevent mistakes.
• Periodically self-audit your Dynamics usage: Don’t wait for Microsoft to audit. Do your own mini-audits. For example, once a year, have ITAM or an internal audit team review Dynamics access logs and license assignments and compare them to entitlements. Identify any anomalies (like more active users than licenses or suspicious use of Team Member accounts) and remediate them immediately. Document these efforts; it shows good faith and governance.
• Use available technical controls: Microsoft has been improving license enforcement (for instance, by 2025, the Finance and Operations apps will enforce license requirements so unlicensed users cannot even exist in the system). Use these features—e.g., enable license requirement warnings, monitor the admin center Messages for any alerts about enforcement changes, and opt in to preview features that help with compliance. The more the system prevents errors, the safer you are.
• Engage independent licensing experts for a health check: Consider having a third-party licensing advisor (like Redress Compliance or similar firms) perform a licensing compliance assessment. They are familiar with common pitfalls and often spot issues your team might miss. This can be done before a Microsoft-initiated review, allowing you to fix things under your control.
• Keep documentation in order: For every Dynamics 365 purchase, maintain records (contracts, invoices, license summaries). Also, keep a copy of the applicable Microsoft Product Terms or Licensing Guide version from when you purchased – the rules governing your use. If Microsoft changes terms later, you have the original agreement to refer to. If an audit happens, being able to show exactly what you bought and under which terms can quickly resolve misunderstandings.
• Stay aware of evolving compliance areas: As Microsoft adds new features (like AI capabilities and integration with other services), new licensing requirements may come. For instance, if you start using a new “Copilot” AI feature in Dynamics, verify if it’s included in your license or requires an add-on—using it without the proper license could be a new compliance issue. Always read the release notes and licensing supplements for new features to ensure you’re covered.

Third-Party Support and Licensing Advisory Considerations

Managing Microsoft licensing is a specialized skill, and many organizations benefit from engaging third-party experts to navigate it.

While Microsoft and its resellers can provide guidance, they ultimately have a sales agenda. Independent licensing advisors or third-party support providers can offer a neutral perspective focused on the customer’s best interest.

In the context of Dynamics 365 licensing, here’s how third-party support and advisory services can be leveraged:

• Independent Licensing Advisors: Firms like Redress Compliance (an example of an independent licensing specialist) offer services to review your Microsoft licensing, optimize it, and ensure compliance. They bring deep expertise in Microsoft’s rules and often have insight into negotiation tactics and upcoming changes. Engaging an advisor for a Dynamics 365 licensing assessment can identify cost savings or compliance gaps you might overlook. They can help you interpret complex terms in Microsoft’s licensing guides or agreements. Importantly, their recommendations tend to be objective because they are not selling you the licenses. E.g., they might suggest reducing license counts or switching to a different agreement if it benefits you, something a sales-oriented vendor might not emphasize.
• Audit Defense and Compliance Support: In case Microsoft initiates an audit or review, third-party advisors can guide you on how to respond, what data to gather, and how to negotiate any findings. They have experience with Microsoft’s audit processes and can often minimize the financial impact by ensuring Microsoft’s auditors correctly interpret your entitlements. This is particularly useful if you have a mix of licenses, legacy entitlements, or areas of ambiguity. A licensing expert on your side levels the playing field when dealing with Microsoft’s compliance team.
• Third-Party Support (for Software Usage): Apart from licensing advisory, some organizations consider third-party support providers for the software (analogous to how some people use third-party support for Oracle or SAP to save on maintenance fees). With Dynamics 365, however, direct third-party support is less common because it’s a cloud service (Microsoft includes support in the subscription, and for higher tiers, you can buy Premier/Unified Support). That said, an implementation partner or independent consultant might serve as your support, and if you ever consider leaving Microsoft’s official support, ensure that it doesn’t violate any subscription terms. Currently, most of the savings in Dynamics come from licensing optimization rather than swapping support providers.
• Licensing Strategy and Negotiation: Third-party advisors can help craft a long-term strategy. For instance, they might analyze your 3-year roadmap and suggest an optimal mix of licenses (maybe recommending Power Apps licenses for certain users instead of Dynamics licenses, or timing an expansion to align with a renewal for better leverage). They can also play a role in negotiations: advising what discount percentages are achievable, which contract clauses to watch for (like price caps, renewal terms, etc.), and how to structure RFPs if selecting a CSP partner. They act as your advocate and have detailed knowledge of Microsoft’s playbook.
• Avoiding Vendor Bias: Relying solely on Microsoft’s account team or a reseller’s advice can sometimes lead to over-licensing (not maliciously, but they may suggest “covering all bases,” which errs on buying more). A third-party review can counterbalance this. For example, a reseller might not mention an alternative licensing method that reduces what you buy from them. An independent consultant will lay out all options, including those that reduce immediate spend but improve efficiency, because their success is measured in your savings and satisfaction, not sales volume.

Recommendations for Using Third-Party Advisory:

• Consider a licensing health check by an independent firm: Especially if you have a large Dynamics 365 deployment or are unsure about the optimal licensing, bring in a company like Redress Compliance to do a one-time review. Their report can uncover missed opportunities or confirm that you’re in good shape. Use this before big renewals or before adding a new suite of licenses.
• Use experts during negotiations: When renegotiating an EA or large CSP agreement, have a licensing advisor on your side. They can interface with procurement and legal teams to get terms that favor you. For example, they might negotiate an early renewal with a price lock if a known increase is coming, or ensure you get pooling of certain capacities. Their fees often pay for themselves via the savings achieved.
• Benchmark and validate: Ask third-party experts how your deal compares to industry benchmarks. Are you getting the discounts that similar-sized organizations get? If not, what can you do better? Use their market knowledge to set targets in your negotiations with Microsoft.
• Leverage third-party tools: Some advisors offer software or tools for ongoing license management (or they can recommend ones). These might integrate with your tenant to automatically monitor license assignment, utilization, and flag issues. If you don’t keep a consultant on retainer, investing in a tool (or a well-structured internal spreadsheet model maintained with their guidance) can keep you optimized long-term.
• Ensure no conflicts of interest: When choosing a third-party licensing advisor, ensure they are truly independent, not also a reseller of Microsoft licenses. Independent means their only incentive is to help you be correctly and efficiently licensed. This may exclude some “free” advice from big resellers, which is tied to selling you more licenses. A paid, independent consultation can be more valuable than vendor-influenced free advice.

Microsoft 365 vs. Dynamics 365 Licensing in Integrated Environments

Many organizations deploy Dynamics 365 alongside Microsoft 365 (Office 365) since the two cloud ecosystems complement each other for productivity and business process needs. However, Microsoft 365 (M365) and Dynamics 365 (D365) have distinct licensing constructs.

Understanding how they differ and how they work together is important for comprehensive IT asset management:

• Different License Scopes and Bundles: Microsoft 365 is typically licensed as a bundle of productivity tools (Windows, Office apps, Teams, SharePoint, etc.) per user, often in plans like E3, E5, Business Premium, etc. These bundles cover a wide range of software under one license. In contrast, Dynamics 365 is modular – each app is a separate license, and you pick and choose which ones a user needs. So, while an M365 E3 license might give a user email, Office, Teams, etc. all together, a Dynamics user license only gives them one specific business app (like Sales or Finance). This means budgeting and assignment for Dynamics is more granular. A user might have M365 E3 for their productivity suite, plus a Dynamics license for CRM – you manage these separately. There isn’t an official “M365 + D365” single license (though Microsoft accounts will show all licenses assigned to a user).
• Shared Identity, Separate Entitlements: M365 and D365 users exist in the same Azure Active Directory tenant. So an employee will have one account but could have multiple licenses attached to it (some from M365, some from D365). From an admin perspective, you use the same portal to assign both types. But the use rights are separate. For example, an M365 license might allow installation of Office on five devices and access to an Exchange mailbox; a D365 Sales license allows use of the Sales app – they don’t overlap. An integration scenario: If a user without a Dynamics license tries to access a Dynamics record shared via Teams, Microsoft’s policy now allows it in certain read-only cases (as mentioned earlier) – that’s an exception carved out to improve integration, but generally, to use D365 functionality directly, a user needs a D365 license regardless of their M365 status.
• Integration Points and Licensing: There are several integration points:
  • Outlook and Dynamics 365: Outlook integration allows users to track emails and appointments in Dynamics 365. To associate the tracking with their account, the user needs a Dynamics 365 license (at least a Team Member). The Outlook app itself is part of M365. So, an employee using both must be properly licensed on both sides (Exchange license via M365 for email and D365 for CRM). No additional license is needed for the integration itself.
  • Teams and Dynamics 365: As discussed, Microsoft has made it possible for any Teams user (who requires an M365 or at least a Teams license) to view Dynamics data if invited. This is a special licensing bridge, effectively granting light D365 access to M365 users. However, creating or editing records still typically requires a D365 license. Integration, like embedding a Dynamics 365 chat or dashboard in Teams, doesn’t cost extra, but ensure that the ones interacting have the appropriate base licenses.
  • SharePoint and Dynamics 365: D365 can use SharePoint for document management (storing records-related files). SharePoint is licensed via M365. If you set this up, you need to have SharePoint licenses (e.g., as part of M365 E3 or SharePoint Plan) for the users, otherwise they can’t access the documents. Meanwhile, the Dynamics side requires its license to access the record that links to the document. Essentially, each side’s licensing remains separate even though the user experience is integrated.
  • Power BI with Dynamics: Power BI (Pro or Premium) is often part of M365 planning. If you embed Power BI visuals in Dynamics or use the Dynamics 365 content packs, each user needs whatever Power BI license is required to view those (often Power BI Pro). No extra Dynamics license is needed beyond their normal one, but you can’t avoid the Power BI license if the content isn’t purely static.
• License Management Differences: M365 licensing often involves managing bundles and understanding cross-suite benefits (like an E5, which includes some security and voice features, etc.), whereas D365 is about managing distinct application licenses and capacity. For ITAM, the processes might differ – you might have an automated provisioning for M365 (everyone gets a base package when hired), but Dynamics licenses might be assigned only upon a specific manager’s request (since not everyone needs CRM or ERP). You should integrate these processes to handle both sets, from onboarding to offboarding. For instance, when a user leaves, you must remove their M365 and D365 licenses to free up capacity.
• Cost Accounting: It can be useful to report the costs separately: M365 as part of the IT infrastructure cost, D365 as part of the business application cost. This is because the drivers for each may differ (M365 tends to scale with employee count, D365 scales with specific departmental usage). When the two are integrated, be careful not to double-count or confuse them. For example, a department might complain, “We pay for Office 365, why do we need to pay extra for Dynamics?” – you’ll need to explain the value of each and that they are different products. Sometimes, packaging them together in internal chargebacks can hide true usage; it might be better to charge Dynamics licenses to the departments that use them, separate from the baseline IT charge for M365, which everyone uses.

Recommendations for M365 and D365 Integration Licensing:

• Maintain clarity between productivity and business app licensing: Internally, document which services come from M365 licenses and which from Dynamics 365. This helps avoid misconceptions. Users should know, for instance, that Office apps and email are covered by one license, but the CRM system is different. Clarity helps in budgeting and in justifying costs to each department.
• Coordinate management of licenses: Ensure your ITAM team or tools can handle a user with multiple license types. For example, when onboarding a salesperson, a checklist should be assigned: an M365 license (for email/Office) and a Dynamics Sales license. When offboarding, remove both. Some organizations integrate HR systems with Azure AD to automate license assignments – make sure Dynamics licenses are included in that automation for the relevant roles to prevent lag (someone starting in sales should not wait weeks to get their CRM access due to a manual step).
• Take advantage of cross-platform features without over-licensing: Use things like the Teams-Dynamics integration to give non-licensed users light visibility rather than automatically buying more licenses. For example, if finance users occasionally need to see a customer record, use the Teams integration feature instead of giving each a full Dynamics license. This maximizes the value of their M365 license and avoids extra D365 costs, while staying within Microsoft’s allowed use scenarios.
• Unified monitoring: Leverage tools that consolidate reporting for M365 and D365 license usage. Microsoft’s admin center does show all licenses per user. Consider exporting license assignments for analysis: e.g., find users who have a Dynamics license but no corresponding M365 license (which might indicate a mis-provision, since typically internal users have both – an external contractor might have D365 only, which could be fine if they don’t need M365). Also, check for orphaned licenses – users who left but still had both M365 and D365 assigned.
• Budget for both sides of integration: If you plan an initiative like rolling out Dynamics 365 to a new group and integrating with Outlook or Teams, include in your project budget any incremental licenses needed on either side. For instance, maybe those users only had an email license before, and now they need a Teams license to use the integration, or vice versa, they had Office but now will need a D365 license. Accounting for this prevents later surprises where the project stalls due to unplanned license purchases.

Recent Licensing Changes and 2024–2025 Updates

The Microsoft licensing landscape is not static—it evolves with product changes, new features, and strategic shifts by Microsoft. In 2024–2025, several notable changes in Dynamics 365 licensing occurred or were announced.

Licensing managers should be aware of these recent updates to ensure compliance and to adjust their strategies:

• Price Increases (Effective Oct 2024): Microsoft implemented a significant price update on many Dynamics 365 licenses in October 2024 – the first major increase in about five years. Most CRM module licenses (Sales, Customer Service, Field Service) increased roughly 10-11%. For example, Sales Enterprise went from around $95 per user/month to $105, Customer Service from $95 to $105, etc. ERP modules saw increases too: Finance and Supply Chain from about $180 to $210 per user/month. Device licenses and lower-tier plans were also raised (Sales Device from $145 to $160). These increases mean renewal costs will be higher; organizations must budget more or adjust license counts. Microsoft justified it as aligning prices with product value and currency fluctuations. For customers, it underscored the importance of locking in prices via longer-term agreements or finding savings through optimizations to offset the hike.
• New License SKUs and Packaging: Microsoft introduced or adjusted certain bundled offers:
  • Sales Premium and Customer Service Premium: These new offerings package the base app with added AI capabilities. For instance, Sales Premium (around $150/user) might include Sales Enterprise plus a set of “conversation intelligence” or predictive scoring features that were add-ons before. Customer Service Premium incorporates digital contact center features (including the Chat and Voice channel licenses) under one price. While these bundles simplify purchasing multiple related features, they also change licensing needs – if you move to a Premium SKU, you might drop separate add-ons like an AI addon or an Omnichannel license because it’s included.
  • Removal of Bundled Items: Conversely, Microsoft removed some entitlements from certain packages. A noted change was that Customer Voice (survey tool) was removed from being included with some Customer Service plans – it became a separate item. Organizations using Customer Voice had to license it separately from 2024 onward if they previously got it “free” with Customer Service. Always review the change logs in the official licensing guide’s appendices to catch such removals.
  • Project Operations attach pricing: There was clarification that Project Operations can be attached at a low price to either CRM or ERP bases (which historically was a bit confusing). By 2025, it’s clear that if you have any other relevant base, Project Ops is available at around $20 as an attachment (significantly cheaper than its full price). This encourages the adoption of Project Ops for existing Dynamics customers.
• License Enforcement Changes: Microsoft announced that by 2025, Dynamics 365 Finance and Operations apps will have technical enforcement to ensure all users have a valid license. Historically, in those ERP apps, user provisioning wasn’t as tightly controlled via the M365 admin center – it was possible (though against the rules) to have unlicensed users. New updates will start warning admins or blocking login if a user doesn’t have a license. This change is beneficial for compliance (it prevents accidents), but administrators must be prepared – you must assign licenses in Azure AD for every user, or they will lose access. In 2024, warning messages were introduced in the UI for unlicensed users as a heads-up.
• Power Platform Licensing Changes: The latter half of 2024 saw adjustments in Power Platform that indirectly affect Dynamics:
  • Power Automate introduced a new “per flow” license and changes to the free allowances, which means some automation that was running free might need a license now if a D365 context does not trigger it.
  • Power Apps licensing was simplified with a single “Per User” plan, allowing unlimited apps and a reduced “Per App” plan. If you were using Power Apps in conjunction with Dynamics, these changes might offer cheaper options for certain users.
  • Dataverse capacity entitlements were tweaked; for example, each Dynamics full user now grants slightly more default storage capacity as of 2025. However, Microsoft also raised the price of extra storage in some regions. Net-net, large data consumers must re-evaluate their capacity licensing under the new rules.
• “New Commerce” and Subscription Terms: By 2025, Microsoft will fully roll out the New Commerce Experience for CSP and direct subscriptions. This affects how you can purchase Dynamics 365:
  • Monthly-term subscriptions (full flexibility) are available but cost about 20% more than committing annually. Many customers were pushed to annual commitments to secure better pricing. If you were used to month-to-month adjustments, this now requires planning to avoid premiums.
  • Cancellation policies tightened – you typically have 72 hours after purchase to reduce quantity; after that, you’re locked for the term (monthly or annual). This is a change from the older CSP, which you can drop off anytime in the month. So license managers must be careful when increasing counts – try not to wildly overshoot actual need, since you can’t drop extras until the term ends.
• Integrating Dynamics 365 Administration into Power Platform Admin Center: A more procedural change, but licensing relevant: Microsoft consolidates admin and licensing interfaces. The administration of Dynamics 365 (especially ERP) via the Power Platform Admin Center means environment add-ons and capacity are handled in one place. The plan to phase out the old Lifecycle Services (LCS) for Finance and Operations and manage those environments the same way as other Dynamics apps will likely bring environment licensing into a unified model. It might mean the old concept of an “additional production instance license” is replaced entirely by capacity. In practice, licensing managers should watch for communications on how to license extra environments under this new model (possibly you’ll just spin up environments as long as you have capacity, rather than buying a separate SKU for an instance).
• AI and Copilot Licensing: Microsoft has heavily promoted AI (“Copilot”) features across its product line. In Dynamics 365, some Copilot features are included in high-end licenses, while others might be separate add-ons. For instance, historically, Dynamics 365 Sales had an add-on for Sales Insights; now, some of those AI capabilities are rolled into Sales Premium or even Enterprise. However, brand-new generative AI features might eventually come with a new cost. Microsoft 365 Copilot (for Office apps) is a paid add-on ($30/user) – for Dynamics, they haven’t set a universal Copilot price, but specific ones (e.g., Viva Sales $40, which works with D365 Sales). In 2025, expect clarity on what AI features in Dynamics will cost. Early adopters should budget: e.g., if you want the AI that drafts answers to customer emails in Customer Service, check if it’s included or if you need a SKU. This is a changing area as Microsoft trials these features.

Staying updated is half the battle. Always read the “Licensing guide updates” section in each official guide release, and follow reputable licensing blogs or advisory services for summaries of changes.

Recommendations to Handle Recent Changes:

Keep training the team: The licensing landscape often changes after Microsoft’s fiscal year events (like Inspire or Ignite conferences). Hold a brief training or update session for your ITAM/licensing team after such events or major announcements.

Summarize what’s new (like “We now have to buy Customer Voice separately” or “We can now do monthly CSP but at a premium, so we’ll stick to annual for stable users”). This continuous learning approach will ensure your team manages licenses with the latest information in mind.

Anticipate and budget for price changes: If you know a price increase is effective (as it did in October 2024), try to renew early or extend your term before the increase. If that’s not possible, work the increase into your budget and seek optimizations elsewhere. Communicate to finance why costs went up—not increased usage, but vendor pricing. This sets the correct expectations and justification for asking for a bigger budget.

Re-evaluate license mix with new SKUs: When Microsoft introduces bundles like Sales Premium or Customer Service Premium, analyze if switching to them would save money or provide better value. For example, if you already pay for Sales Enterprise plus an AI add-on, the Premium might consolidate that potentially at a discount. But also be cautious – if you don’t need the extras, the base license alone is cheaper. Do this evaluation at renewal time.

Ensure compliance with new enforcement: The moment Microsoft enforces license checks in the product, audit all current users vs. assigned licenses. Clean up any discrepancies now. It’s better for you to proactively assign missing licenses (or remove users) than to block them at a critical time. Also, inform your Dynamics support team of this change so they aren’t caught by surprise by errors that are license issues.

Update internal documentation: Update your internal playbook or SOPs whenever licensing rules change. For instance, if cancellation terms changed under New Commerce, make sure your team knows that adding a license is now a commitment for at least a month or a year. Remove outdated advice (like an old price or an obsolete plan name) to avoid confusion.

Engage Microsoft or partners on new features: If you plan to use one of the new AI Copilot features or something like the new Customer Insights offering, proactively ask “what license is required for this?” rather than assuming it’s included. Sometimes, preview features are free and then later require a paid license. By planning, you can incorporate necessary licenses into your agreement or negotiate a deal while in preview.

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