Dynamics 365 Renewal Strategies
Dynamics 365 license renewals are high-stakes events for enterprises. Every 3-year Microsoft Enterprise Agreement (EA) term or annual Cloud Solution Provider (CSP) subscription brings a chance to re-evaluate license needs and costs.
CIOs must approach renewals strategically to avoid unexpected cost spikes and ensure the agreement aligns with current business needs.
Without a solid renewal strategy, organizations can face significant budget surprises. For instance, many enterprises see renewal quotes 20–30% higher than the previous term if nothing is done to mitigate increases.
This article outlines key renewal strategies for Dynamics 365 under an EA, covering preparation, right-sizing, timing, and negotiation tactics to achieve the best outcome.
Read CIO Playbook: Negotiating Microsoft Dynamics 365 Contracts.
The Renewal Cycle and True-Ups
True-Up Basics:
In a typical EA, you commit to a certain number of Dynamics 365 user licenses for the 3-year term and report any additions annually as a “true-up.”
For example, if you signed an EA for 500 Dynamics 365 Sales licenses but added 50 more users mid-year, you must report and pay for those extra 50 for the remaining term at the anniversary. True-ups are one-way adjustments: you pay for increased usage but generally cannot reduce your license count until the EA renewal.
This means even if your user count drops, you continue paying for the initially committed quantity until the term ends. CSP agreements differ by allowing month-to-month license adjustments, but large enterprises on EA still need to manage true-ups carefully.
Implication:
Because you can’t scale down in an EA mid-term, monitoring Dynamics 365 license assignments throughout the year is crucial. Track new hires, departures, and project changes so you aren’t caught off guard at true-up time. Proactively reclaim licenses from departing employees or unused deployments to minimize true-up costs. Enter renewal negotiations with accurate data on current usage versus entitlements.
Early Preparation for Renewal
Start Early (6–12 Months Out):
A common mistake is waiting until a few weeks before the EA expiration to plan the renewal. Instead, begin renewal preparations a year in advance. Microsoft expects big customers to negotiate, and starting early gives you time to methodically analyze needs and form your strategy. Engage stakeholders (IT, finance, procurement, business units) 6–12 months before the renewal date to assess usage and set objectives. Early planning prevents last-minute scrambling, which weakens your leverage.
Assess Current Usage:
Do a thorough audit of how many Dynamics 365 licenses are in use versus how many you pay for. Identify shelfware – licenses assigned to ex-employees, redundant users, or unused modules. It’s common to find licenses that haven’t been used in months. Eliminating or reassigning these before renewal ensures you aren’t renewing unnecessary licenses. For instance, if you have 500 licenses allocated but only 450 active users, plan to reduce the excess 50 at renewal.
Forecast Future Needs:
Work with business leaders to project the next 1–3 years of Dynamics 365 usage. Will any new divisions or projects require additional D365 seats? Are there plans to downsize or move certain workloads off Dynamics? Include these in your renewal plan.
Examples: If a new customer support center is opening next year, you may need 200 more Customer Service licenses – negotiate those upfront. Conversely, if a department using Dynamics is being divested or an overlapping tool is being adopted, you might reduce those licenses. A clear demand forecast allows you to negotiate the right quantities (and possibly secure better pricing for planned growth).
Understand Microsoft’s Product Changes:
Microsoft frequently updates Dynamics 365 licensing, packaging, and add-ons. Before renewing, review the latest Dynamics 365 licensing guide and product announcements. New modules or license types that affect your optimal licensing mix might have emerged.
For example, Microsoft’s introduction of an AI-based “Copilot” add-on or changes in bundling could present opportunities to consolidate or adjust licenses.
Also, check if any licenses you currently use are being phased out or replaced. You may need to transition to new SKUs at renewal. Staying informed prevents you from renewing outdated SKUs or missing out on more cost-effective bundles.
Right-Sizing and Cleanup Before Renewal
Renewal time is your chance to right-size your license counts to actual needs. Since you’ve been stuck with the baseline quantity during the EA term, use the renewal to reset:
- Eliminate Shelfware: Before negotiating, clean up all unused Dynamics 365 licenses. Identify users who left or no longer need access and remove their licenses. Also, check for any “read-only” users who might be better suited with a lower-cost license tier (such as Team Member) rather than a full license – those adjustments can be made now. It’s wasteful to renew licenses that have been sitting idle. By removing 10% of unused licenses (not uncommon in large enterprises), you immediately cut recurring costs going forward.
- Validate License Types: Ensure each user is assigned the appropriate license type for their role. For instance, some full Sales Enterprise license users might only require a lighter Sales Professional or Team Member license. Renewal is a good checkpoint for downgrading high-cost licenses assigned to low-usage users. Similarly, consider whether any users with multiple Dynamics apps are properly using the attach licensing model (more on this in optimization). If not, adjust your license plan to use base/attach and save money in the next term.
- Align with Actual Modules Needed: Evaluate if you are paying for any Dynamics 365 modules or add-ons your organization isn’t heavily using. Perhaps you licensed a module like Field Service or AI Insights as part of a bundle, but few users adopted it. If a particular product usage is low and not expected to grow, consider dropping it at renewal to streamline your subscription. It’s easier to remove underused components now and add them later if needed, than to continue paying for them “just in case.”
By thoroughly cleaning up and right-sizing before signing the new agreement, you ensure the EA renewal reflects the business’s real needs, not legacy assumptions.
This positions you to negotiate pricing on a lean, efficient license profile rather than overspending on a bloated one.
Read Maximizing Discounts in Dynamics 365 Agreements.
Navigating Price Increases at Renewal
Even with the right number of licenses, the price per license often increases at renewal if not negotiated carefully.
There are two major factors to watch:
- List Price Uplifts: Microsoft periodically raises list prices for cloud services, and Dynamics 365 is no exception. Over a 3-year term, the catalog prices may have gone up. You could inherit those standard increases on all your licenses if you renew without negotiation. For example, if Sales Enterprise was $95/user/month at your last signing and is now $105 on the price list, renewing at list would raise costs ~10%. Always check current pricing and don’t assume your old unit price carries over.
- Expiring Discounts: Microsoft often gave significant discounts in the initial deal (especially if you were migrating from on-premises or a competing product). Those promotional discounts do not automatically carry over to the new term. Without intervention, a license that was 20% off in your last EA could revert to full price at renewal, causing a big jump in spend. This is a common reason CIOs see a shocking increase in year-over-year Dynamics costs. Strategy: Identify any discounts or special pricing you had in the expiring term – plan to renegotiate to extend them or at least phase them out gradually instead of losing them all at once.
Example:
If you enjoyed $80/user/month pricing on a license that lists for $100 (20% discount) during your initial term, the budget for that will be $100 unless you negotiate a concession. A savvy CIO will go into talks with Microsoft insisting that the new pricing stay closer to $80 (perhaps $85 in year 1 and $90 in year 2, etc., rather than jumping straight to $100).
Additionally, look out for any contractual price protections you had. Sometimes, enterprise agreements include caps on price increases or locked pricing for additional licenses. Ensure these protections are extended or renewed; otherwise, you could face mid-term price hikes or higher rates for adding new users later.
Negotiating the Renewal
Renewal is effectively a re-negotiation of your Dynamics 365 deal with Microsoft, so treat it as such:
- Engage Microsoft with a Plan: Several months before the EA expiration, communicate your expectations to your Microsoft account team. Let them know you will reevaluate needs and that cost efficiency is a priority. You set the tone by signaling early that you intend to negotiate (and not simply rubber-stamp a renewal). Microsoft will often provide a renewal quote or True-up summary around 3–6 months out—use that as a baseline, not the final offer.
- Benchmark Alternatives: Even if you fully intend to stay on Dynamics 365, it helps to have market comparisons. Research what similar CRM/ERP solutions (Salesforce, SAP, Oracle) might cost for equivalent users. This gives you a credible position to push back on prices – e.g., “Salesforce quoted us a lower price per user for sales automation.” Microsoft knows switching is painful, but demonstrating that you have options increases your leverage. If nothing else, it justifies your ask for a better discount to “stay competitive with the market.”
- Leverage Your Total Microsoft Spend: If your Dynamics 365 is part of a broader Microsoft relationship (likely including Office 365, Azure, etc.), consider negotiating the renewal in the context of the bigger picture. Microsoft may be more flexible on Dynamics 365 pricing if they see an opportunity to grow your Azure usage or renew other product suites simultaneously. Bundling the negotiations (or at least reminding Microsoft of your overall account value) can yield concessions. For example, you might say, “We’re evaluating increasing our Azure commitment, but we need better Dynamics pricing to free budget.” Use every avenue to create leverage.
- Time Your Final Agreement: Microsoft’s fiscal year-end (June 30) and quarter-ends are when sales teams are hungry to close deals. Aim to finalize your renewal in a timeframe that is advantageous to you. If your EA ends in July, starting discussions in Q4 (April–June) could pressure Microsoft to offer more discounts to book the renewal before year-end. At minimum, don’t let the renewal slip past your end-date without a signed deal – that’s when Microsoft knows you have no choice. Plan to have the new agreement ready to execute right as the old one ends, ideally timed when Microsoft is most eager to hit targets.
- Negotiate for Discounts and Terms: Everything is on the table at renewal – not just the per-user price, but terms like payment structure, the ability to add licenses at the same discount, and contractual flexibility. Push to lock in discounts for the full term (e.g. “we want a X% discount off current list, fixed for 3 years”) and to include a “price hold” for additional licenses you might add later so they come at the same discounted rate. Microsoft’s initial renewal quote may attempt to remove prior discounts; be prepared to counter with data and a firm stance that you require better. If the negotiation gets tough, don’t hesitate to escalate within Microsoft or bring in executive sponsors on your side.
Maintaining a united front with your internal team throughout the negotiation. Finance and IT should align on walk-away positions and must-have outcomes.
Microsoft sometimes uses pressure tactics – like warning of audit risks or using time pressure – but if you’ve prepared well, you can stay confident and push back on unfavorable terms.
CIO Recommendations
- Begin Renewal Planning Early: Start the renewal process 6–12 months before your Dynamics 365 EA expires. Early planning gives you time to audit usage, identify needs, and set negotiation goals, avoiding last-minute desperation that favors Microsoft.
- Reassess and Right-Size Licenses: Clean up unused licenses before renewing and ensure each user has the appropriate license type. Eliminate shelfware and downgrade or remove any licenses not truly needed. Enter negotiations with a lean, accurate license count to avoid overpaying for the next term.
- Forecast Future Demand: Work with business units to project user growth or reductions over the new term. Use these insights to negotiate the right number of licenses (and possibly volume discounts for planned growth) rather than reacting mid-term. Align the renewal to known upcoming projects or changes.
- Maintain Existing Discounts: Proactively address any expiring promotional discounts. Don’t let a 20% first-term discount disappear without a fight – negotiate to extend it or phase it out gradually to prevent a sudden cost jump. Similarly, seek to cap any list price increases during the new term.
- Engage in Hard Negotiation: Treat the renewal like a major vendor negotiation. Benchmark competitor pricing to strengthen your position, leverage your entire Microsoft spend for bargaining power, and time the deal closure for Microsoft’s quarter/year-end if possible. Insist on favorable terms such as fixed pricing for the term and the ability to add users at the same rates. If the initial offer isn’t acceptable, be prepared to push back and escalate.
- Consult Independent Licensing Experts: Consider bringing third-party licensing advisors (e.g., Redress Compliance) to support your renewal strategy. They can provide an unbiased analysis of Microsoft’s proposal, benchmark industry best practices, and help you negotiate aggressively. An independent expert ensures you’re not relying solely on the vendor’s guidance and can often identify savings or risks you might overlook.
Read more about our Microsoft Negotiation Services.
