Common Dynamics 365 Licensing Mistakes
Introduction
Dynamics 365 licensing is complex, and organizations often make mistakes that result in wasted spending or compliance risks. CIOs must be vigilant to avoid these pitfalls.
This advisory highlights the most common Dynamics 365 licensing errors—from misjudging user license types to misusing custom apps—and provides guidance on how to avoid them. Learning from these mistakes will help enterprises optimize costs and ensure compliance with Microsoft’s rules.
Mistake 1: Over-Licensing Users
A common error is buying more licenses (or higher-tier licenses) than necessary. For example, purchasing full Dynamics 365 licenses for users who only occasionally need to view data, or continuing to pay for licenses for modules that are no longer in use.
This often happens due to a “set and forget” approach or overestimating needs. The result is overspending on unused licenses.
How to Avoid It:
Assess each user’s needs before assigning a license. Many employees don’t require the full capabilities of a CRM or ERP app. If someone primarily needs to consume information or perform very light tasks, use a cheaper Team Member license instead of a full license.
Also, periodically audit license assignments versus actual usage. If certain licenses haven’t been used in months, remove or reallocate them. By right-sizing licenses to real needs, you eliminate the need to pay for shelfware.
Read Licensing Dynamics 365 CRM & ERP Applications.
Mistake 2: Misjudging Team vs. Full User Licensing
Conversely, some organizations attempt to save too much by underutilizing the Team Member SKU. The Team Member license has strict limitations: it’s intended for read-only or very light use across Dynamics 365.
A mistake occurs when Team Member licenses are assigned to users who perform core tasks that require a full app license. For instance, a customer service agent can only be given a Team Member license, even though they must create and manage support cases (beyond Team Member rights). This misstep can hinder productivity and violate license terms if users perform actions they’re not licensed for.
How to Avoid It:
Be crystal clear on what Team Members can and cannot do. Microsoft publishes detailed guidelines on the use rights of team members. Use Team Member licenses only for roles that require minimal interaction (e.g,. viewing reports, entering small updates).
If a user’s role involves core functions such as entering sales opportunities, resolving support tickets, or approving invoices, they require the proper full license for that app. It’s better to pay for the correct license than to be non-compliant and face potential audit penalties. Microsoft has begun technical enforcement of Team Member limitations, so misuse will eventually be blocked or caught.
Mistake 3: Misusing Custom Apps to Bypass Licensing
Some organizations attempt to reduce costs by building custom Power Platform apps to avoid buying Dynamics 365 licenses. For example, they might create a Power Apps interface on top of Dynamics 365 data and offer users a more affordable Power Apps license instead of a Dynamics 365 license.
While this might work technically, it violates Microsoft’s licensing intent. Microsoft explicitly prohibits using lower-cost licenses (such as Power Apps or unqualified Team Member access) to indirectly access or replicate Dynamics 365 functionality that normally requires a full license. In other words, you can’t bypass paying for a Dynamics module by recreating its features in a custom app if you’re using the same underlying data.
How to Avoid It:
Avoid attempting to circumvent the licensing system with unsupported workarounds. If users are accessing Dynamics 365 data and capabilities, they should have the appropriate Dynamics 365 licenses. Power Apps licenses are meant for building custom or standalone solutions, not for cloning Dynamics apps to dodge licensing fees.
When in doubt, consult Microsoft’s licensing documentation or seek expert advice. Generally, if an app utilizes Dynamics 365’s standard entities (such as accounts, contacts, leads, and cases), each user requires the corresponding Dynamics license. Use custom apps to extend or enhance Dynamics 365, not to evade its licensing requirements.
Mistake 4: Paying Double for Multi-App Users
Another costly mistake is assigning multiple full licenses to one user when it’s not necessary – essentially paying twice for the same person’s access. This happens when organizations don’t use Microsoft’s attach license model.
For example, a user might be given both a full Sales license and a full Customer Service license separately, doubling the cost for that user. In reality, Microsoft allows that scenario to be covered by one full license and a cheaper add-on license for the second app.
How to Avoid It:
Audit any users who have more than one Dynamics 365 license. In almost all cases, one of those licenses can be converted to an attach license (with a much lower price) as long as the user has a qualifying base license.
Ensure that for each user requiring multiple Dynamics modules, you use one base license (the highest-priced app) and then license additional apps for that user as attachments. If you find users with two or more standalone licenses, work with your Microsoft rep or licensing partner to switch to base+attach licensing. This correction can yield substantial savings without loss of functionality.
Mistake 5: “Set and Forget” at Renewal Time
Many companies set their Dynamics 365 licensing and then renew the same quantities and types of licenses year after year without re-evaluation. Business needs change over time – you may have fewer (or more) users than before, or different modules in use – but if you never revisit your licensing mix, you’ll keep paying for an outdated situation.
Additionally, Microsoft’s licensing offerings and prices are subject to change, so a more cost-effective option may now be available. Failing to review and adjust at renewal time can lock in inefficiencies and unnecessary costs for another term.
How to Avoid It:
Treat each renewal as an opportunity to recalibrate and refine your approach. Before renewing your agreement or subscriptions, audit current usage and determine if you need every license you’re paying for. Remove or reduce licenses that are no longer needed (e.g., if certain departments have stopped using a module).
Also, check if Microsoft has introduced new license types, bundles, or promotions that could better suit your needs. By approaching renewals proactively—not just rubber-stamping last year’s order—you can negotiate and align your licensing with your current state, potentially saving a significant amount. Don’t be afraid to adjust your license counts or mix; Microsoft expects customers to true up and true down as business demands change.
Read Negotiating Dynamics 365 Volume Discounts.
Recommendations for CIOs
- Educate on Licensing Rules: Ensure your IT and procurement teams understand the various Dynamics 365 license types and their limitations (e.g., Team Member vs. full user, attaching licenses, etc.). Basic training on the licensing guide can avoid many errors.
- Conduct Routine License Audits: Make it standard practice to review license assignments and usage regularly (quarterly or semi-annually). Proactively identifying mislicensed users or unused licenses enables you to resolve issues before they escalate into costly problems.
- Use Admin Tools for Insight: Leverage the Dynamics 365 Admin Center or other monitoring tools to see who uses what. For example, identify if some users haven’t logged in for 90 days (possibly indicating that their license can be removed) or if Team Member users are attempting actions they shouldn’t (suggesting they need an upgrade).
- Engage Independent Experts: Consider an external licensing assessment by specialists (like Redress Compliance), especially if you have a large or complex Dynamics deployment. They can identify subtler mistakes and help optimize your license strategy with an impartial eye.
- Integrate Licensing into Change Management: When onboarding new users or deploying new Dynamics 365 features, include a step to verify licensing. Don’t let new usage scenarios grow without proper licenses. By integrating license checks into your change management and governance processes, you can prevent many mistakes from occurring in the first place.
Read more about our Microsoft Optimization Services.
