How to Save on Microsoft 365 Licensing Costs
- Choose the right plan: Select a plan that fits your organization’s size and needs.
- Review usage: Reassess licenses regularly to remove unused accounts.
- Use annual plans: Save money by choosing yearly billing over monthly.
- Consider add-ons carefully: Only buy add-ons if necessary.
- Leverage Microsoft discounts: Take advantage of volume and educational pricing.
How to Save on Microsoft 365 Licensing Costs
Microsoft 365 represents a significant ongoing expense for businesses of all sizes. However, with the right strategies, companies can dramatically reduce their licensing costs without sacrificing productivity.
Effective license management, right-sizing, and continuous monitoring of usage patterns can help organizations optimize their subscriptions and ensure they pay only for what they need.
This article will provide a comprehensive guide on saving on Microsoft 365 licensing costs.
From auditing your current usage to taking advantage of advanced cost-saving strategies, you’ll learn how to maximize your investment and streamline your licensing expenses.
License Optimization Strategies
Implementing an effective license optimization strategy ensures your organization gets the most value from Microsoft 365.
By following best practices for auditing, right-sizing, and monitoring, you can significantly reduce costs while maintaining all the features and functionality your team needs.
1. Assess Your Current Licensing Landscape
The first step in optimizing your Microsoft 365 licensing costs is thoroughly auditing your existing licenses. According to industry research, approximately 44% of Microsoft 365 licenses are underutilized or oversized, meaning businesses are paying for licenses they don’t fully use.
Start by creating a detailed inventory of your current licenses, including:
- The types of licenses in use
- The associated costs for each plan
- The usage patterns of individual users and teams
This audit will help you understand which licenses are underused, which users have higher-tier licenses but only require basic features, and where there may be opportunities to downgrade or reallocate licenses.
2. Right-Size License Tiers
One of the simplest ways to reduce your Microsoft 365 costs is to right-size your licenses. Not all employees need access to the full range of premium features with higher-tier licenses.
Here’s how you can right-size:
- Basic Users: Employees who only need access to email and basic document editing (Word, Excel, PowerPoint) can typically use lower-tier licenses like Microsoft 365 Business Basic or Microsoft 365 F1.
- Power Users: Employees who require advanced features, such as data analysis tools, enterprise-level security, or advanced compliance features, should be assigned higher-tier licenses, such as Microsoft 365 E3 or E5.
- Frontline Workers: Workers in retail or customer-facing roles may only need basic email and communication tools. The F3 license, priced at $8.00 per user/month, is usually sufficient for these employees and offers significant savings compared to more comprehensive plans.
By carefully aligning licenses with user needs, you ensure each employee gets the right features while avoiding overpaying for unnecessary functionality.
3. Monitor and Optimize Usage
License optimization isn’t a one-time task; it’s an ongoing process. Regularly monitoring license utilization is important to ensure your organization consistently saves on licensing costs.
Here are some key strategies for ongoing license optimization:
- Reallocate Unused Licenses: Employees who leave the company, change roles, or no longer need access to certain features should have their licenses promptly reallocated. Failure to do this can lead to wasted costs on unused or inactive licenses.
- Review Usage Patterns: Regularly review usage reports through the Microsoft 365 Admin Center to identify instances where higher-tier licenses are used for users who only need basic functionality. In these cases, downgrading their licenses is considered.
- Identify Opportunities for Downgrades: As business needs change, so do user requirements. Some employees who initially needed advanced features may now be able to use more basic plans. Downgrading licenses for such employees can result in substantial savings over time.
By continuously monitoring license utilization and adjusting licenses based on actual usage, you can avoid paying for features that are not being used.
Cost-Saving Tactics
While optimizing license usage is key to reducing costs, there are additional tactics you can implement to maximize your savings on Microsoft 365 subscriptions.
1. Switch to Annual Billing
Microsoft offers significant cost savings for customers who opt for annual billing instead of monthly payments. An annual subscription saves 10% or more of the standard monthly rate.
- Monthly Billing: While flexible, monthly billing often comes at a premium.
- Annual Billing: Opting for annual billing allows businesses to lock in a lower rate and avoid the per-month markup. For most organizations, the upfront cost is more than offset by the savings over the year.
2. License Management Best Practices
Effective license management involves tracking all user accounts, usage patterns, and service needs. Implementing these practical steps can prevent unnecessary expenditures and ensure your business does not pay for unused services.
- Remove Licenses from Departed Employees: Promptly remove licenses from employees who have left the organization. This simple step can prevent you from paying for no longer needed licenses.
- Reallocate Unused Licenses: When new employees join, or roles change, reallocate licenses from employees who no longer need them to those who do.
- Monitor Disabled Accounts: Even if a user is disabled in your system, they may still use a license. Make sure that disabled users are not using unnecessary licenses.
- Track SharePoint Storage Limits: SharePoint storage can easily exceed its limits, leading to automatic subscription increases. Monitor your storage usage regularly to avoid unnecessary charges for additional space.
By actively managing licenses, removing unused licenses, and tracking resource consumption, businesses can avoid paying for features and services they no longer need.
Read about Microsoft 365 for educational institutions.
Optimize Premium Features
Microsoft 365 includes many premium features, some of which might not be necessary for every user or organization.
By reviewing and optimizing premium features, you can ensure that you’re only paying for what you need.
- Evaluate Premium Features: Features like Power Apps, Power Automate (Flows), and premium connectors can quickly add to your costs. Consider whether these features are essential to your business. It may be worth downgrading or eliminating these options if they are not fully utilized.
- Consider Standalone Licenses: In some cases, purchasing standalone licenses for specific tools like Teams or Power BI may be more cost-effective than bundling these services within a more expensive Microsoft 365 plan.
1. Hybrid Solutions
A hybrid licensing approach could offer more flexible and cost-effective terms if your organization maintains on-premises infrastructure alongside cloud services.
- Hybrid Exchange: Some businesses use on-premises Exchange servers with Microsoft 365. A hybrid Exchange deployment may allow you to reduce your cloud Exchange licensing costs while still offering cloud functionality to your hybrid users.
- SharePoint Hybrid: Similarly, SharePoint hybrid configurations allow businesses to maintain on-premises SharePoint servers while integrating cloud-based SharePoint Online, reducing the need for extensive cloud storage and related costs.
Hybrid solutions can allow businesses to maintain flexibility while reducing cloud licensing and infrastructure costs.
2. Work with Independent Experts
Another way to reduce your Microsoft 365 licensing costs is by consulting with independent Microsoft licensing experts. These professionals have specialized knowledge of Microsoft’s licensing structure and can provide unbiased advice on optimizing your subscription.
- Expert Guidance: A licensing expert can help you identify cost-saving opportunities, suggest the best licensing models for your business, and even negotiate better terms with Microsoft.
- Alternative Licensing Models: Experts can help you explore alternative licensing models, such as volume licensing agreements, that may provide significant discounts depending on your company’s size and usage needs.
Enterprise Specific Considerations
Larger organizations have more complex licensing needs, and Microsoft 365’s enterprise plans come with various options that can be tailored to your business requirements.
1. Enterprise License Planning
For larger organizations, Microsoft 365 offers several licensing options to meet diverse needs:
- E1 (no Teams): This is the Basic plan for organizations with limited needs, at $7.75/user/month.
- E3 (no Teams): $20.75/user/month – Standard plan for organizations requiring more advanced business tools.
- E5 (no Teams): $35.75/user/month – Premium plan for businesses requiring advanced security, analytics, and compliance features.
Consider these licensing options carefully to ensure they match your employees’ required features. For instance, employees who don’t need advanced security or compliance features can use E1 licenses, while those who require data analytics or advanced collaboration features may benefit from E3 or E5.
2. Add-on Management
Many organizations purchase unnecessary add-on services. Evaluate whether these add-ons justify their costs.
- Microsoft Teams: If you’re already using Teams as part of your Microsoft 365 plan, you may not need to purchase a standalone Teams license for your employees.
- Copilot for Microsoft 365: This premium feature, priced at $30/user/month, can offer advanced AI-powered tools. However, ensure its use is essential for your business needs before committing to this added cost.
Implementation Best Practices
Cost optimization is an ongoing process, not a one-time effort. To maintain long-term savings, follow these best practices for managing your Microsoft 365 licenses:
1. Regular Review and Adaptation
License needs change as businesses grow, evolve, and adopt new technologies. Conduct regular audits (at least quarterly) to ensure your licenses still match your company’s needs.
- Review Usage Patterns: Regularly check for underutilized licenses and identify users who may need more or fewer features.
- Adapt to Business Needs: As your business changes, adjust licenses accordingly to ensure you’re always paying for what you need and nothing more.
2. Automated License Management
To streamline the license management process, consider implementing automation tools to track license usage, generate utilization reports, and identify opportunities for cost savings.
FAQ: How to Save on Microsoft 365 Licensing Costs
What’s the best way to save money on Microsoft 365 licenses?
The best way to save is by choosing the plan that fits your team’s needs, eliminating unnecessary licenses, and opting for annual payments instead of monthly ones.
Can I save money by paying annually for Microsoft 365?
Yes, opting for annual subscriptions often offers a discount compared to monthly billing, making them more cost-effective for long-term use.
How do I reduce Microsoft 365 costs for employees who leave?
You can deactivate or remove licenses for employees who no longer need them, helping to reduce unnecessary costs.
Are Microsoft 365 add-ons more cost-effective than upgrading plans?
Yes, purchasing specific add-ons for features like security or compliance can be cheaper than upgrading to a more expensive plan with additional features.
Can I mix and match Microsoft 365 plans to save money?
Yes, mixing plans across your team can save money by ensuring that each user only gets the features they truly need rather than paying for unnecessary upgrades.
Is there any way to get discounted Microsoft 365 licenses for nonprofits?
Microsoft offers discounted or even free licenses for qualifying nonprofit organizations through its Microsoft for Nonprofits program.
Can I remove unnecessary Microsoft 365 features to cut costs?
You can switch to lower-tier plans or remove features like advanced security tools or additional storage that aren’t essential for your business needs.
Are Microsoft 365 volume licensing options cheaper for larger teams?
Yes, volume licensing can offer discounts for organizations that need many licenses, helping reduce per-user costs.
How can I evaluate whether my team is over-licensed?
Audit your user licenses regularly to ensure you’re not paying for unnecessary features or unused accounts, and adjust accordingly.
Can I transfer Microsoft 365 licenses between users?
Yes, you can reassign licenses between users in your organization, making it easier to optimize license distribution based on changing roles.
Are there free trials for Microsoft 365 plans?
Microsoft offers free trials for many of its Microsoft 365 plans, allowing you to test the features before committing to a subscription.
Can I downgrade my Microsoft 365 plan if needed?
Yes, you can downgrade to a lower-tier plan if your needs change, though this may impact available features.
Is there a difference in Microsoft 365 pricing by region?
Microsoft 365 pricing can vary by region or country due to taxes, exchange rates, and regional pricing strategies.
How do I find out if I qualify for Microsoft 365 discounts?
You can check for available discounts by visiting the Microsoft website or contacting Microsoft support to inquire about eligibility for educational, nonprofit, or government discounts.
Can I use Microsoft 365 licensing for remote teams to save costs?
Yes, Microsoft 365 is well-suited for remote teams. Choosing the right plan with essential features allows you to keep costs down while enabling remote work.
