Dynamics 365 Licensing Metrics and Models
Introduction
Microsoft Dynamics 365 uses multiple licensing metrics. Some parts of Dynamics 365 are licensed per user, while others are based on capacity (such as the amount of data or number of transactions).
Additionally, Microsoft imposes certain usage limits (e.g., API call quotas) that organizations must heed. CIOs need to understand these nuances—such as user-based vs. capacity licensing, API limits, and storage entitlements—to effectively manage costs and ensure compliance.
Named User vs. Capacity-Based Licensing
Most Dynamics 365 applications are sold on a per-named-user subscription basis.
For example, if 100 employees need access to Dynamics 365 Sales, you purchase 100 Sales user licenses. This model’s cost scales with headcount.
However, some offerings use capacity-based licensing, meaning you pay based on usage volume rather than per person:
- Most Apps – Per User: Core CRM and ERP modules (such as Sales, Service, and Finance) use per-user-per-month licensing. Every individual who accesses the service must have their own license (cloud services don’t allow license sharing or concurrent user models).
- Certain Apps – Per Capacity: Products like Microsoft Dynamics 365 Marketing are licensed based on usage metrics rather than user count. Marketing is priced by the number of contacts in your marketing database (e.g., increments of 10,000 contacts) and the volume of marketing emails/events, not by the number of marketers using the system. You pay a base fee (approximately $1,500/month for a set number of contacts) that covers all users, and then purchase additional capacity if your contact count increases. In other words, a small marketing team targeting millions of contacts will pay more than a large team targeting a few thousand contacts, because the cost is directly tied to the volume of outreach. Another example is Customer Insights, which is priced based on the number of customer profiles managed, regardless of the user count.
Why it Matters: If an app is user-based, controlling the number of licensed users (and using cheaper license types where appropriate) is the path to savings.
If an app is capacity-based, you must manage usage – e.g., keep the marketing contact list lean or segment it to avoid jumping to a higher pricing tier. Understand each module’s model to predict how costs will increase as your usage (either users or data) grows.
API Request Limits and Add-Ons
Microsoft enforces API request limits on Dynamics 365 to protect service performance. Every user license includes a daily quota of API calls (transactions against the system via any client or integration).
For example, a Dynamics 365 Enterprise user might be allocated 20,000+ API calls per 24 hours (exact figures vary), whereas a Team Member user has far fewer. Typical interactive use rarely hits these limits, but heavy integrations or data migrations can.
If your organization exceeds these API entitlements, Microsoft may throttle excess calls and expect you to purchase extra capacity.
They offer add-on licenses to increase API throughput (often called Power Platform request capacity add-ons). These essentially raise the daily call allowance for your tenant or specific users.
CIO Consideration:
Anticipate your integration load. If you plan to integrate Dynamics 365 with multiple systems in real-time (or run IoT scenarios that pump in data), calculate whether the default API limits are sufficient. If not, include the cost of additional API capacity in your project budget or negotiate it into your agreement.
Staying within limits is also a performance issue – hitting the cap can cause failed transactions.
Regularly monitor usage (Microsoft provides reports on API consumption) so you can proactively address any approaching limits by optimizing calls or scaling up your capacity licensing.
Read Negotiating Dynamics 365 Volume Discounts.
Storage Capacity and Costs
Dynamics 365 data is stored in Microsoft’s cloud (Dataverse), and your subscription comes with a certain storage capacity.
If you go beyond that, you pay extra. Key points:
- Included Storage: Each Dynamics 365 tenant receives a default allotment of database storage (for records), file storage (for attachments), and log storage. Additionally, each full user license typically contributes a bit more to the pool. (For example, you might get a base 10 GB database storage plus a few hundred MB per user license – the actual numbers are in Microsoft’s licensing guide.) This pooled capacity is shared across all your Dynamics 365 apps/environments in that tenant.
- Exceeding Capacity: When your usage surpasses the included storage, you must buy additional capacity. Extra storage is sold per GB per month. The cost can be significant, roughly $40/GB/month for database storage. So, if you need an extra 100 GB for your growing CRM database, that’s roughly $4,000 per month in additional costs. File storage (for items such as attachments) is more cost-effective, but it is still a factor to consider if users frequently upload numerous documents or images into the system.
- Managing Storage: Monitor your storage consumption closely. Dynamics 365 admin center shows how much of each capacity you’ve used. Implement data retention policies: archive or delete data that is no longer needed for live operations. For example, you might purge support cases older than X years or move email attachments to an external repository after a period. Reducing unnecessary data controls, licensing costs, and optimizing application performance. If you know you’ll ingest a large volume of data (such as migrating legacy records or a one-time import of millions of leads), discuss this with Microsoft – sometimes temporary allowances are available, or you may decide to purchase additional capacity for that period.
Pricing Differences Across Applications
Each Dynamics 365 application has its pricing structure and a wide variation in cost per user (or per capacity unit).
A few notable differences:
- CRM vs. ERP License Costs: CRM apps (customer engagement tools) like Sales and Customer Service have list prices ranging roughly from $65 to $95 per user per month for enterprise-level plans. ERP apps, such as Finance and Supply Chain Management, are significantly more expensive, often costing over $ 180 per user/month. Microsoft values ERP functionality more (typically, ERP users are fewer in number but have high-value roles). CIOs should not be shocked when a 200-user CRM and a 200-user ERP system have vastly different licensing bills. Note that some CRM apps have Professional editions (with limited features) at lower prices; these can be used to save money if the advanced capabilities of the Enterprise edition aren’t needed for certain users.
- Light Users (Team Members): The “Team Member” license is very inexpensive (~$8) compared to any full user license. This is ideal for employees who only need to occasionally view or input minor data in Dynamics 365. Organizations often license large populations (e.g., all frontline workers) as Team Members to give them basic self-service access to records. It is essential to ensure that these users remain within their allowed functionality; if they exceed their limits, you’ll need to upgrade them to a full license, a significant increase in cost. However, leveraging Team Member licenses for the right roles can dramatically lower your average cost per user.
Note: Capacity-based modules, such as Marketing, don’t neatly fit into per-user comparisons. A marketing app at $1,500/month might serve five or 50 users—the cost doesn’t change with user count, only with the size of your marketing contact database.
Always evaluate such products on a case-by-case basis. Sometimes, the breakeven point versus a per-user model is very favorable; other times, it can be expensive if your usage is high.
Read Dynamics 365 Licensing: Cloud vs On-premises.
Recommendations for CIOs
- Identify Licensing Metrics Upfront: For each Dynamics 365 app or feature you plan to use, determine if it’s licensed by user, capacity, or both. Incorporate the correct metric into your cost estimates (e.g., don’t forget to price in contact packs for Marketing or extra users for Sales).
- Monitor Usage vs. Entitlements: Use the admin center to monitor API call consumption, storage usage, and any other metered usage. This helps avoid unplanned costs—you can act (or buy add-ons) before hitting a hard limit.
- Plan for Data Growth: Assume your Dynamics 365 data will grow over time. Set a policy for data retention to keep storage growth manageable, and budget for storage add-ons in advance if you anticipate large expansions (for example, adding a new business unit’s data into CRM).
- Mix License Types for Cost Efficiency: Avoid overspending on higher-tier licenses if some users can perform their jobs with lower-tier ones. For instance, consider deploying Sales Professional or Team Member licenses for certain groups if their needs are limited, while power users get Sales Enterprise. The licensing model enables this mix-and-match approach, allowing for tailoring the cost to usage. Ensure governance to prevent Team Member users from quietly using features for which they aren’t licensed.
- Consider All Ancillary Costs: When comparing Dynamics 365 to other solutions or planning your budget, include costs beyond user seats. Factor in required Power Apps/Power Automate licenses (if you build custom extensions), integration workloads that might need API capacity, and test environment licenses or storage. A true Total Cost of Ownership will account for these licensing model nuances.
Read more about our Microsoft Optimization Services.
