How to Optimize Dynamics 365 Licensing Costs
Controlling licensing costs is a top priority for CIOs managing Microsoft Dynamics 365. Dynamics 365 delivers critical business capabilities (CRM, ERP, etc.), but its subscription fees can quickly add up to millions annually in a large enterprise.
Cost optimization isnโt a one-time exercise โ it requires ongoing diligence in allocating, using, and renewing licenses.
Fortunately, Microsoftโs licensing model offers flexibility and opportunities to optimize if you know where to look. This article provides a comprehensive guide to trimming unnecessary Dynamics 365 spend while ensuring users have the necessary access.
From eliminating wasted โshelfwareโ licenses to choosing the right license mix and taking advantage of Microsoftโs pricing structures, we cover practical steps to get the most value out of every dollar (or dirham, euro, etc.) you invest in Dynamics 365.
Read CIO Playbook: Negotiating Microsoft Dynamics 365 Contracts.
Right-Size Every Userโs License
Not all Dynamics 365 users are equal in terms of the functionality they need. Microsoft provides multiple license types and levels โ use this to your advantage by matching users to the most cost-effective license that meets their needs:
- Full Users vs. Light Users: Dynamics 365 has full application licenses (e.g., Sales Enterprise, Customer Service Enterprise, Finance, etc.), which are the most expensive and intended for power users. However, there are alsoย Team Memberย licenses for light users who mainly read data and perform basic tasks at a fraction of the cost. Review your user base: often, some users in the system do not use the full capabilities. For example, an executive who just views dashboards, or an employee who only updates a few fields occasionally, might be a candidate for a Team Member license instead of a full license. Organizations can significantly cut costs by downgrading 10% of infrequent users to Team Member licenses while enabling those users to do their jobs.
- Use โAttachโ Licenses for Multi-App Users: Microsoftโs licensing allows a user who needs multiple Dynamics 365 apps (say Sales + Customer Service, or Finance + Commerce) to pay full price for the first app and a much lower price for additional apps (the attach license). Ensure any user in multiple modules is set up with this base-and-attach approach. The savings are substantial โ an attached license is often around 1/4 the cost of a standalone license. Example: A Sales Enterprise license might cost roughly $95/user/month, and Customer Service Enterprise another $95 if bought separately, totaling $190. But if you license the user for Sales as the base at $95 and then Customer Service as an attachment at about $20, the total is $115 โ a 40% reduction for that dual-role user. Multiply that across dozens of users, and the cost benefit is huge. Check your current licensing: if anyone is assigned two full licenses where one could be an attachment, fix it immediately to stop overpaying.
- Consider Device Licenses for Shared Environments: Dynamics 365 offers device-based licenses in certain scenarios (e.g., for Retail or Field Service). A device license allows multiple users to use Dynamics on a shared device (like a warehouse kiosk or retail register) without each needing their own user subscription. If you have shift-based workers who share computers or tablets, one device license can cover all of them on that device. This is often cheaper than licensing each worker individually, especially if none need to access Dynamics except via that shared station. Evaluate if device licensing applies to your operations โ it can optimize costs in environments like call centers, stores, or factory floors.
- Optimize by Role: Map out typical roles in your organization and what Dynamics access they require. For instance, a customer service rep likely needs full Case management capability (Customer Service app). Still, a field technician might only need to log work orders in Field Service and read some customer info (maybe a lower-tier license or Team Member could suffice if they just update status). Creating a license assignment policy per role prevents you from giving everyone a โCadillacโ license when a โHondaโ will do. Itโs common to find that companies initially over-provision with higher-tier licenses for all, which can be corrected once usage patterns are clear.
Eliminate License โShelfwareโ
โShelfwareโ refers to licenses purchased but not used (akin to software on a shelf). In the context of Dynamics 365, shelfware can occur when users leave the company, projects end, or if you overestimated needs.
Reducing this waste is one of the fastest ways to cut costs:
- Regularly Audit License Usage: At least a few times a year, run a report of all Dynamics 365 licenses you are paying for and check how many are assigned to active users. Unassigned licenses (or those assigned to accounts that havenโt logged in for months) are low-hanging fruit for cost savings. For example, if you find 50 Sales licenses unassigned, thatโs 50 * $95/month youโre potentially throwing away. You could remove them from your next billing (if on CSP monthly) or drop them at the next EA true-up or renewal. Keep an eye on Dynamics admin center metrics โ Microsoft provides visuals of assigned vs. available licenses, making it easier to spot surplus capacity.
- Integrate License Management with HR Processes: One effective practice is to tie your employee offboarding process to license removal. When someone leaves the organization or transfers roles, IT should promptly deactivate their Dynamics 365 user and free up that license for someone else. Itโs easy to overlook this, especially in large companies โ a departed employeeโs account might remain active or the license not reclaimed. Automating this (for instance, via an IAM system that triggers license removal on termination) ensures youโre not paying for ghosts. Similarly, when onboarding, assign licenses deliberately based on need, not just because โtheir predecessor had it.โ
- Monitor Inactive Users: Beyond just those who left, identify users with a license who rarely or never log in. Many orgs find that a non-trivial percentage (10โ20%) of licensed users havenโt used the system in 30, 60, or 90 days. This could indicate they donโt need it or thereโs an adoption issue. Work with managers to confirm if those roles truly require Dynamics access. If not, you might cut those licenses (or temporarily remove and see if anyone complains). Removing inactive users also has an added benefit: it might highlight training or adoption gaps to address, but at least youโre not paying for unused capacity.
- Use Periodic True-Ups to Adjust Down (if possible): You typically cannot reduce licenses until renewal in an EA. However, you can choose not to true-up licenses you removed mid-term (meaning you wonโt increase your count). Take advantage of that flexibility if youโre on a more flexible subscription (like CSP annual or monthly). Scale down your subscription count as soon as you identify a reduction. For CSP, reductions usually take effect at the next monthly cycle or annual anniversary if on annual billing. Waiting means more months of paying unnecessarily.
Optimize Licensing Mix and Features
Beyond user counts and types, consider these additional angles to optimize costs:
- Evaluate Editions (Pro vs. Enterprise): Some Dynamics 365 products have multiple editions (e.g., Customer Service Professional vs Enterprise). The Professional edition is cheaper but has certain limitations. If your usage of a given app is basic, you might not need the full Enterprise version for all users. Perhaps your sales team could use Sales Professional licenses, which cost less than Sales Enterprise, if they donโt need advanced customization or certain AI features. Do a feature fit analysis: Sometimes companies buy the top edition by default, but a lower edition would suffice for many users. Mixing editions (some Enterprise, some Professional) can be tricky in the same environment due to functionality differences, but itโs worth exploring if the cost difference is large.
- Leverage Free and Included Capabilities: Ensure youโre not paying for things included. For instance, every Dynamics 365 full user typically includes some Power Platform use rights and basic model-driven Power Apps capabilities. If you have simple custom apps, you might not need separate Power Apps licenses for those users โ their Dynamics license covers certain usage. Or if you are paying for a separate reporting tool while Dynamics offers built-in charts or integrates with Power BI (which you might already have via M365 licenses), you could drop the extra tool. While this isnโt a direct Dynamics license cost, itโs about using what you have fully before buying more.
- Shared vs. Dedicated Instances: Consider your environment strategy. Microsoft charges for additional Dynamics 365 production instances and storage. If you have multiple instances for various regions or business units, are they all necessary, or could some be consolidated to save on instance fees? Reducing the number of Dynamics environments (tenants/orgs) might let you reduce duplicate license assignments or admin overhead. However, this needs to be balanced against performance and data isolation needs.
- Watch Add-on Consumption: Dynamics 365 has certain add-ons (like additional storage, marketing contacts, etc.) that can increase costs if you exceed base entitlements. Regularly review your storage usage in Dynamics โ if itโs approaching the free limit, clean up unused data (old logs, attachments) to avoid purchasing extra GB. For the Marketing module, keep an eye on the number of contacts to stay in your tier. These are small operational tasks that can stave off incremental charges.
- Choose EA vs. CSP Carefully: As discussed in our EA vs CSP article, the purchasing program impacts cost. Enterprises historically using EA should periodically evaluate if a CSP model could save money due to its flexibility (pay only for actual users). If your user count fluctuates or you are in a downsizing cycle, moving to CSP could avoid the sunk cost of an EAโs fixed commitment. On the other hand, if you plan growth, an EAโs discounts might yield a lower unit price. The optimal choice can change over time, so reassess it at renewal.
Read Dynamics 365 Licensing in Enterprise Agreements (EA vs CSP)
Use Analytics and Ongoing Monitoring
Optimization is an ongoing effort. Leverage tools and data to continuously tune your licensing:
- Dynamics 365 Admin Center Reports: Microsoftโs admin portal for Dynamics provides insight into license allocation and usage. Use the license summary to check how many licenses are assigned vs. purchased. Also, user activity reports should be utilized (for example, the Office 365 admin center can show user activity in Dynamics 365 applications if enabled). These reports might highlight that a certain user hasnโt logged a single case or opportunity in months โ a flag to check if they need a license.
- External License Management Tools: Consider third-party Software Asset Management (SAM) tools that track cloud license usage. Some tools can connect to Dynamics 365 and provide richer analytics, like identifying if a user might qualify for a lower license based on actual usage patterns. They can also alert you when you approach license caps or if new users are added without licenses. The cost of such tools/services can often pay for itself through the optimizations it enables.
- Set KPIs for License Utilization: Treat license efficiency as a performance metric. For instance, track a KPI like โActive Dynamics 365 users as a percentage of total licenses purchased.โ Aim to keep this close to 100% as possible, meaning nearly all licenses are active. If that percentage drops, an action will be taken to investigate. You can also set a target for cost per active user and try to improve it by rightsizing licenses.
- Stay Informed on Licensing Changes: Microsoft licensing is not static. Subscribe to Microsoft announcements or work with your Microsoft partner to get updates on any changes to Dynamics 365 licensing or pricing. Occasionally, Microsoft introduces new bundles or adjustments (for example, they might increase the capabilities of a cheaper license or introduce a promotional offer). Being aware of these can lead to new optimization opportunities. For instance, if Microsoft raises the price of a certain license next year, you might decide to renew early or adjust your mix to mitigate that. Or if they allow license transfers between products in a new policy, you could shift unused licenses to where theyโre needed instead of buying more.
Read Dynamics 365 Licensing Audits.
CIO Recommendations
- Match License Types to Usage: Analyze user roles and grant the lowest-cost Dynamics 365 license that meets each personโs needs. Use Team Member licenses for read-only or light users, and reserve full licenses only for users requiring full application functionality. Regularly review if some users can be downgraded to cheaper license tiers as their usage changes.
- Utilize Base-and-Attach License Model: Take full advantage of Microsoftโs attach licensing to avoid paying full price for users who need multiple Dynamics 365 modules. Always assign one primary license and then attach licenses for additional apps at a reduced cost. This tactic can save tens of dollars per user per month, greatly lowering total costs for multi-app users.
- Purge Unused Licenses Frequently: Conduct quarterly internal audits to find and eliminate โshelfware.โ Remove or reassign Dynamics 365 licenses unallocated or tied to inactive accounts. Donโt wait for renewal โ if youโre on a flexible subscription, adjust down immediately. Aim to keep license utilization high (e.g., >90% of purchased licenses in active use).
- Integrate License Management with HR: Make license allocation part of your onboarding and offboarding workflows. When employees leave or change roles, promptly reclaim their Dynamics 365 licenses. This prevents the accumulation of unused subscriptions. Periodically, managers should certify which team members truly need Dynamics access to catch any that can be removed.
- Optimize Feature Sets and Editions: Reevaluate whether all users need the top-tier product editions. If a department only uses basic CRM features, consider the โProfessionalโ SKU instead of the โEnterpriseโ to save cost. Similarly, turn off or avoid paying for add-ons that arenโt delivering value. Ensure youโre leveraging included capabilities (like built-in reporting, basic PowerApps rights) before purchasing extra tools.
- Monitor and Adjust Continuously: Treat cost optimization as an ongoing process. Use admin center reports or SAM tools to monitor usage patterns and license assignments. Set up alerts or reviews for anomalies (e.g., sudden drop in active users, or new purchases that spike costs). By monitoring these metrics monthly, you can make small adjustments (like scaling down unused licenses) that cumulatively yield large savings.
- Plan Licensing with Flexibility in Mind: When deciding between licensing programs or terms (EA vs CSP, 1-year vs 3-year, etc.), consider your businessโs growth and changes. Opt for the model that minimizes paying for unused capacity. For instance, if uncertain about user count, a CSP approach might let you pay only for current needs. An EA with volume discounts could be more economical if stable and growing. Revisit these decisions at each renewal to ensure youโre in the optimal arrangement.
- Engage a Licensing Cost Audit: It can be beneficial to occasionally have an independent review of your Dynamics 365 licensing. Firms like Redress Compliance or SAM specialists can analyze your usage and contracts to identify overlooked optimization opportunities. They might find, for example, that 15% of your users could be on cheaper licenses or that youโre entitled to some benefits you werenโt using. An external perspective often uncovers savings that internal teams might miss due to familiarity or assumptions.
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