Introduction
When Microsoft (or your reseller) presents a renewal proposal for your enterprise agreement or licensing contract, it can be dozens of pages of SKUs, prices, and terms, not to mention any “bundled” offers for new products or cloud services. Evaluating this proposal is a crucial step that should be approached systematically and skeptically.
This section provides a framework for dissecting a Microsoft renewal proposal, focusing on the financial analysis (cost), the contractual terms, and any bundled services or products included.
By carefully evaluating these elements, sourcing professionals and CIOs can identify hidden costs, assess whether the proposed deal meets their needs, and prepare informed counteroffers.
Remember, a renewal proposal is often Microsoft’s opening offer – it’s up to you to analyze it and decide what to accept, negotiate, and drop.
Read Microsoft Contract Renewal Planning & Strategy
Key Considerations in Proposal Evaluation
1. Break Down the Costs
Start with a detailed cost analysis:
- License Quantities and Unit Prices: Verify that the quantity of each license in the proposal matches your needs (preferably the needs you’ve identified via your internal usage review). Microsoft’s quote may replicate or increase your current quantities, assuming growth. Check each line: Do we need that many of this SKU? If you find, for example, 1,000 Office 365 E5 licenses quoted but you know only 800 users actively need E5 (and the rest could use E3), flag that as an area to adjust. Don’t pay for 200 extras just because they’re on the proposal.
- Pricing and Discounts: Identify the unit price and any discount applied. Microsoft proposals often show the list price and then a discounted price. Calculate the effective discount percentage you’re getting for each major product and overall. Compare these against benchmarks if you have them (what discount did you get last time? What do similar organizations get?). If you don’t know external benchmarks, at least compare to Microsoft’s price lists or your previous deal. For instance, if Office 365 E3 is listed at $X/user/year, what % off the current list price is that? Ensure the proposal doesn’t quietly include a price increase. Microsoft has been known to raise list prices periodically, so what looks “flat” might mean you lost a discount. If you see lower discounts than expected, that’s a negotiation point.
- Year-by-Year Costs: Check if costs are the same or escalate each year. An EA proposal might have the same annual cost for 3 years (if quantities are fixed), but if you plan to add usage, years 2 and 3 might include growth. Ensure any planned growth or changes are explicitly laid out. For Azure or consumption services, see if they assume an increase in spend each year or any required ramp-up.
- One-Time vs Recurring Charges: Identify one-time fees (like a one-time purchase of perpetual licenses or a true-up payment) versus recurring subscription charges. Also note if Microsoft included any credits or funding (sometimes they offer a one-time credit, e.g., Azure credits for the first year). Account for those properly in your cost evaluation.
- Total Cost of Ownership: Add up the total cost of the 3-year (or applicable term). Sometimes a proposal can be deceiving by focusing only on “yearly” cost; a small yearly increase could be millions over 3 years. Understanding the TCO is important for internal budgeting and comparing it with alternatives. If Microsoft’s proposal includes an Azure commitment, incorporate the cost plus any overage risk if you under-consume (more on that under bundled services).
2. Scrutinize Contractual Terms and Conditions
Cost is just one side of the coin; the terms and conditions can significantly impact the value and flexibility of the deal:
- Reduction and Flexibility Rights: Determine what the proposal says about your ability to reduce licenses. Under a traditional EA, you generally cannot reduce during the term (only add via true-up), but you can reset to a lower number with no penalty at renewal. Ensure the proposal is based on your right-sized counts. If you’re considering a different program (like moving some services to CSP or a shorter-term subscription), note those terms (CSP under new commerce, for instance, may allow reduction only at certain intervals). If Microsoft offers an “Enterprise Agreement Subscription (EAS)” instead of a perpetual EA, which allows licenses to be dropped at each anniversary, check if that option is in the proposal.
- Price Protections: Look for any clauses about price locks or caps. Does the proposal lock your per-user price for all 3 years? (EA usually does for the products you license initially). More strategically, consider if you can negotiate a cap on price increases for the renewal after this one. For example, some companies have negotiated a clause stating that any price increase at the next renewal is capped at 5%. If such terms aren’t in the proposal, you might want to negotiate them in, but knowing they’re absent is the first step. Also, if the proposal includes consumption (Azure), see if the unit rates for Azure are fixed or if they can change with price list updates.
- Payment Terms and Financing: Check when payments are due. Standard is annually upfront in an EA, but perhaps you could negotiate different timing if needed (quarterly payments, etc., sometimes at the cost of a financing fee). Ensure the proposal’s payment terms align with your cash flow preferences or constraints. For example, if they offered spread payments over 3 years for a big Azure commit, be sure it’s documented.
- Unused Balances or True-downs: If any prepaid elements (like Azure Monetary Commitment) exist, understand what happens if you don’t use them all. The proposal might not state it outright, but unused Azure credits are typically forfeited at the end of the term. You might want to negotiate flexibility or a smaller commitment if you’re unsure of usage. The key is to spot if they have assumed a large commitment that could become “use it or lose it” – this is a term to be wary of.
- Contractual Lock-ins: See if any terms lock you into other agreements or renewals. For example, if you take advantage of special pricing on a 3-year deal, is there a catch, such as having to commit to a longer cloud subscription beyond the EA term? Usually, not explicitly, but read the fine print or footnotes.
- Changes from Current Contract: Compare to your current agreement’s terms. If you currently have a certain flexible provision, ensure it’s carried over. One example: perhaps you had an amendment allowing license transfers or special training vouchers—check if those benefits continue. Also, verify the support level if included or any changes to Software Assurance benefits.
- Audit and Compliance Terms: It might not be in the “quote” part of the proposal, but if they’re issuing a new agreement document, look at the audit clause and any changes to how Microsoft can verify compliance. Some organizations negotiate softer audit terms or advance notice periods. While evaluating a proposal, have a legal review of any new contract language Microsoft has included. Sometimes standard agreements update over time (for instance, Microsoft might have updated liability or data processing terms since your last signing). Identify any problematic terms for your company’s policies early, so you can counter-propose changes.
In summary, don’t just focus on the numbers – read the contract terms or summary Microsoft provides. A good deal is not only about the price, but also about the flexibility and risk embedded in the terms.
Read Building the Microsoft Renewal Negotiation Team.
3. Identify and Evaluate Bundled Services and Upsells
Microsoft often sweetens (or complicates) renewal proposals with bundled offerings:
- Product Bundles (e.g., Microsoft 365 E5 or Add-ons): If your current agreement is largely E3 licenses, the renewal quote might include a push to E5 licenses (bundling security, compliance, and voice features). Evaluate each bundled component: Are these features/tools you plan to use? E5 (or other bundles) commonly include nice-to-have features that many users never touch, yet you’d be paying ~50% more per user. If you suspect that’s the case, question the value. For example, Microsoft loves to bundle products to drive up deal size, but often customers pay for features they don’t need. Ask Microsoft (or internally determine) a cost breakdown if possible: how much of the E5 price is for phone system, how much for advanced analytics, etc. For much less, you might get by with E3 + a few select add-ons. Case in point: Maybe you realize that only the security team needs advanced threat protection from E5, which you could buy as a separate add-on for a subset of users rather than E5 for everyone.
- Upsell to New Products: The proposal may include products you’ve never licensed. For instance, they might propose a bundle of Power Platform licenses, Dynamics 365 modules, or Azure services in addition to your standard stack. Treat these with healthy skepticism: Are they included as a trial? Are they “free” for now, but would cost later? Or are they simply adding cost for something you didn’t request? It’s not uncommon for Microsoft to include 100 licenses of Power BI Pro or a chunk of Azure consumption, framing it as a package. Evaluate if these align with a genuine need. If not, they might be padding. Remember, you are not obligated to accept every line of a proposal – you can remove items that you don’t find necessary.
- Azure Consumption Commitments: Many recent EA renewals include an Azure Monetary Commitment (you agree to spend a certain amount on Azure over the term). This is often bundled to secure a discount on Azure or to meet Microsoft’s objectives. Evaluate this carefully: Does the committed amount align with your cloud strategy and forecasts? Overcommitting to Azure just to get a discount can backfire – some companies have locked in large commitments and then struggled to use that budget, effectively wasting money or forcing inefficient cloud use to “burn” the commitment. Check if the proposal’s Azure commit is realistic (get your cloud team’s input). Also, what discount or benefit are you getting for that commitment? Sometimes, a commitment is necessary to get a certain level of Azure pricing (like a 5% or 10% discount). Consider negotiating a smaller commitment if you’re not confident, or terms that allow flexibility (e.g., carryover of unused Azure funds, though Microsoft’s standard EA doesn’t allow that, you could request some flexibility if you are a big account).
- Other Bundled Services or Benefits: Microsoft might include consulting days, FastTrack services, training vouchers (as part of Software Assurance), or even promotions like “x% off first year of Windows 365,” etc. List these out. While they often have value, evaluate them: Will you use them? For example, if they offer 100 consulting hours from Microsoft Services, do you have a project for those hours? If not, it’s not truly a benefit. On the other hand, leverage anything useful – those have a dollar value that offsets cost if you will use them. Ensure such offers are documented (how to redeem, expiration, etc.). They should also not distract from the core negotiation – treat them as nice add-ons, but not a reason to accept a less-than-good price on licenses.
- Dependency of Discounts on Bundles: Be aware if Microsoft’s pricing is conditional. Sometimes the proposal’s discounts might be predicated on you buying a certain bundle. For example, “We’re giving 20% off Office 365 E3, but only if you also purchase Azure XYZ or upgrade X% of users to E5.” Try to clarify if discounts will change if you remove or alter one part of the bundle. Microsoft’s quotes might not explicitly say this, but in verbal discussion, reps might imply, “This great discount assumes you take these new products.” If you find a bundle item truly unnecessary, prepare to argue that you want the discount on the core regardless, or at least understand the trade-off.
Overall, evaluate bundles with a simple principle: If it doesn’t bring value to your organization, it shouldn’t bring cost to your agreement. Do not be afraid to unbundle the proposal. Microsoft’s bundle pricing can sometimes obscure the fact that some components are overpriced individually. It may turn out that negotiating components separately yields savings.
For instance, one study found that Microsoft bundles could be significantly more expensive than picking and choosing solutions. You can use that approach: if they push the E5 suite, price out E3 + needed add-ons, and compare. If it is cheaper, you have a case to make for a better deal or a custom bundle at a lower price.
Read Post-Renewal Checklist for Microsoft Agreements.
4. Assess Alignment with Needs and Strategy
Beyond the raw numbers and terms, step back and ask: Does this proposal align with our business needs and IT strategy for the next 3 years?
- Licenses vs. Usage Projections: Compare what’s being sold to what your internal teams forecast. If you know you plan to hire 500 more staff in two years, check if the proposal expects that (perhaps they quoted a higher Year 3 quantity). Conversely, if layoffs or divestitures are expected, you might end up over-licensed if you accept static numbers. Consider negotiating the ability to flex down or only commit to what you know, and handle growth via true-up or separate purchases later.
- Cloud vs On-Prem Mix: Many proposals nowadays push cloud subscriptions. If your org is ready, ensure the cost accounts for any on-premise pieces you still need. For example, suppose you still need Windows Server licenses with Software Assurance for on-premises. In that case, Microsoft’s proposal is all about Azure, ensuring those on-prem needs aren’t neglected or underquoted. Evaluate if staying on-prem for certain workloads with Software Assurance might be cheaper than Microsoft’s proposed cloud alternative (taking into account any hardware, third-party costs).
- Future-Proofing and Roadmap Fit: Are there products in the proposal that might become important a year from now? Sometimes, Microsoft includes new items to anticipate market trends (e.g., Windows 365 Cloud PC or Azure AI services). If they align with your roadmap, perhaps consider them, but negotiate favorable terms (like pilot quantities or the ability to scale later at locked pricing). If not on your roadmap, they might be safe to cut, but be aware of what they are in case that changes.
- Licensing Program Choice: The proposal might assume you renew the same way (e.g., another Enterprise Agreement). However, it is worth considering whether a different licensing program or mix would be better. For example, suppose the EA proposal is too costly and inflexible. In that case, you might evaluate moving some things to CSP or MCA for more flexibility (maybe not something Microsoft’s initial quote shows, since they often default to EA). Run scenario analyses as part of the evaluation: What if we did not renew this EA and bought it monthly via CSP instead? What if we only signed an MCA for Azure? Sometimes, just the threat or option of changing the model can give negotiation leverage. Microsoft’s FAQ states there’s no penalty for switching programs at renewal, and customers should re-evaluate their options. If the proposal isn’t competitive, considering alternate routes (and mentioning that to Microsoft) can prompt a better offer.
5. Quantify Value of Bundles and Extras
For each bundled service or added product, try to quantify its value or ROI:
- If Microsoft proposes E5 security features, quantify what it would cost to buy similar capabilities separately (either from Microsoft à la carte or a third-party security vendor). If you find a significant cost difference, use that in negotiation – e.g., “We can achieve the same with a third-party for less, so this needs to be priced more competitively or removed.”
- If Azure credits or consulting days are offered, put a dollar value on them and consider if they truly offset something you’d otherwise pay for. For example, $100k in Azure credits is real money if you plan to consume Azure anyway – that effectively reduces cost – but only if you spend that much. Free consulting might save you from hiring outside help for a project, but only if you have that project ready.
- Microsoft might tout “soft” benefits (support, customer success manager, etc.). Ensure that if those are claimed as part of the deal, they are written down and that you know how to utilize them. Sometimes, benefits vanish or go unused because they weren’t explicit.
After this thorough analysis, you should have a clear understanding of:
- What is the true cost of the proposal, and which parts drive that cost?
- Which items in the proposal are needed, which are questionable, and which are not?
- Where the proposal is weak or disadvantageous (e.g., lack of flexibility, risk of unused commitment).
- Where you have leverage or alternatives (like removing bundles, adjusting quantities, or shifting to a different licensing approach).
Examples
Consider some examples to illustrate evaluating and adjusting proposals:
- Example 1: Bundled Suite vs À La Carte – A professional services firm’s renewal proposal showed all 2,000 users moving from Office 365 E3 to Microsoft 365 E5, raising annual costs by 40%. The CIO and team broke down the E5 bundle: it included advanced security (ATP), phone system, Power BI Pro, and more. They found that many E5 components overlapped with tools they already owned or didn’t plan to use (they used a third-party security solution and weren’t ready to deploy Teams Phone). By quantifying this, they returned to Microsoft with a counter: stick with E3 for most users, buy just 200 E5 licenses for the few who needed Power BI and advanced features, and for security, they’d continue with their existing product unless Microsoft heavily discounted just those components. This granular evaluation saved them from paying for a slew of unused features. Microsoft initially tried to push back, but when the firm pointed out they’d essentially be paying for two security solutions (and were willing to drop Microsoft’s if forced), Microsoft relented and gave a customized deal with E3 + the security add-on at a steep discount just for those who needed it. The result was a much smaller increase and a solution aligned to actual needs.
- Example 2: Azure Commitment Oversight – A retailer’s EA renewal included a new Azure consumption commitment of $2M over 3 years. The procurement team saw the big number but not the fine print implications. The cloud architect on the team raised a red flag, noting their current Azure spend was only about $400k/year. Unless they ramped up projects significantly, $2M/3yr was overshooting. They analyzed growth plans and decided a safer commitment was $ 1 M. They also calculated overcommitting by $1M would waste more money than the extra 5% discount Microsoft dangled for the higher commitment. Armed with this, they negotiated the Azure commitment down to $1.2M with the same discounted rates (Microsoft originally wanted $2M for a certain discount, but the threat of the customer not committing at all pushed them to be flexible). Six months into the term, this proved wise: the company’s Azure usage grew but still tracked under the original aggressive target, meaning they would have left much money on the table trying to hit $ 2 M. This example underlines evaluating commitment levels against realistic usage and not being seduced by overcommitting just for a slightly better unit price.
- Example 3: Terms Matter – Price Cap Negotiation – A tech company recalled that they got hit with a big price jump in their last renewal because their prior discounts didn’t carry over. When evaluating the new proposal, they noted it still had no guardrails on future pricing. Learning from experience, they negotiated a “not to exceed X% increase” cap on the next renewal’s pricing. Microsoft’s initial reaction was that they typically don’t fix future prices. However, the customer was willing to trade a bit – they agreed to a slightly higher Year 1 price in exchange for a contractual addendum that at the next renewal, the prices for their core products would not increase more than 5% if they renew. This kind of term was unconventional but not unheard of for strategic clients. By bringing it up during the evaluation, they prepared the ground for it. The final deal included a clause that essentially locked their discounts for the next cycle. This shows how evaluating a proposal is not just about what’s there, but what’s not there and should be asked for.
- Example 4: Removing Unnecessary Products – A company found in its proposal 500 licenses of Visio and 500 of Project Online, products they had in their previous EA but realized they no longer needed at that scale (only maybe 100 power users used them; alternatives existed for others). Microsoft had just copied the old quantities. The IT asset manager recognized this from the usage review and flagged it. The evaluation team marked those line items to be significantly reduced or even cut. During negotiations, they informed Microsoft they would not renew all those Visio/Project licenses – perhaps only 100 of each. Microsoft initially tried to keep them in by offering a modest discount, but the customer had decided to use cheaper third-party diagramming tools for most users. They cut 400 Visio and 400 Project licenses out of the deal, saving considerable cost and simplifying the agreement. If they hadn’t carefully checked each product, they might have blindly renewed hundreds of licenses that no one would use. This example underscores checking each proposal component against actual business needs and not assuming you must renew everything you had before.
Recommendations
After evaluating the renewal proposal in detail, here are the recommendations to proceed effectively:
- Engage Stakeholders in Review: Circulate the proposal details to the relevant internal experts – IT subject matter owners, finance analysts, and licensing specialists. A collaborative review can catch issues one person might miss. For example, let your security team look at the E5 security bundle and weigh in on value, or let finance validate the costing math. This ensures your evaluation is holistic.
- Create an Evaluation Scorecard: It can be useful to make a simple scorecard or checklist of the proposal components, including: Must-haves (meets need), Nice-to-haves (but negotiable), Not needed, and Red flags. Use traffic light coding (green = OK, yellow = needs clarification or improvement, red = problematic) for quick visualization. This can guide your negotiation focus – green items are fine, red ones you will push back or remove, yellow ones you’ll discuss.
- Validate Proposal Assumptions: Check all assumptions in the proposal with your own data. If Microsoft assumed growth or product adoption, confirm if that’s in your actual plan. If not, challenge those assumptions in the counter-proposal. Don’t accept “we assumed you’d want 20% more of X” unless you truly do.
- Prioritize Issues for Negotiation: Identify the top 3-5 changes that would make the biggest difference (cost or risk reduction) and focus on those first in negotiation. Perhaps it’s cutting an unneeded bundle, lowering an Azure commit, or getting a price reduction on the main SKU. Lesser issues (like a small discrepancy in count or a minor term tweak) can be addressed later or conceded if needed. Having priorities prevents being overwhelmed and helps you communicate clearly to Microsoft what needs to change for you to sign.
- Ask for Clarifications in Writing: If any part of the proposal is unclear – for instance, “Includes Microsoft Defender ATP for all users” – ask Microsoft to clarify it in writing. Sometimes, certain services might be included as a trial or have usage limits. Get clarity to know exactly what is being offered and for how long. This will avoid disputes later (“We thought we had X, but turns out we didn’t after signing”).
- Consider Alternative Scenarios: Outline a couple of alternative scenarios as part of your counter-strategy. For example, Scenario A: Renew EA as proposed, but with these changes (fewer licenses, better discount). Scenario B: Shift some scope to CSP or cloud-only models if the A deal isn’t good. Scenario C: Worst-case, drop certain Microsoft products entirely (perhaps replace them with other software) if they can’t meet the terms. Knowing these scenarios gives you negotiating leverage; you can subtly let Microsoft know you have options. It also prepares you internally if you truly need to pivot.
- Leverage Independent Benchmarks: If possible, use third-party benchmarks for pricing and terms. Independent licensing advisors or peer connections can sometimes share what discount % or special terms others got. If you know, for instance, that companies of your size often get 20% off and you’re only getting 10%, you can confidently push for better (“We believe there’s room to improve this price based on market benchmarks.”). Be cautious not to reveal confidential information, but general market knowledge is fair to use.
- Don’t Be Afraid to Push Back or Walk Away: After evaluation, you might find the proposal far from acceptable. In negotiations, clearly articulate your concerns and requirements. For example: “We evaluated this proposal and see we’d be paying for a lot of unused functionality. Unless we can restructure it to fit our needs (XYZ changes), we cannot proceed.” Be willing to walk away or delay the deal if necessary – sometimes not signing by the deadline is better than locking into a bad contract. That’s a last resort, but showing you’re not afraid to consider alternatives (like going month-to-month on Azure or even considering another vendor for some capabilities) can pressure Microsoft to improve the offer.
- Ensure Final Agreement Reflects All Changes: Double-check that the final paperwork and quote reflect everything once you negotiate improvements. Sometimes changes are agreed upon verbally, but paperwork comes, and the item wasn’t updated. Meticulously reconcile the final proposal/contract to what was negotiated. That includes verifying pricing, quantities, and any added terms (like that price cap or special concession) are written in. This is where your earlier clarity requests and documentation help.
By thoroughly evaluating the initial proposal and then negotiating based on that evaluation, you transform the renewal from a passive quote acceptance into an active, value-driven negotiation. The ultimate recommendation is to be analytical and not accept proposals at face value—Microsoft’s initial offer often has room for improvement, and it’s the buyer’s diligence and negotiation that realize those improvements.
Read about our Microsoft Negotiation Service.
