Selecting the right Microsoft 365 Enterprise license edition is crucial for balancing cost and capabilities. Not everyone in the organization needs the top-tier E5 plan. Right-sizing licenses — using E3 or F3 where appropriate — can deliver enterprise-wide productivity while avoiding overspending on unnecessary features.
CIOs and CTOs should tailor their Microsoft 365 licensing mix — E3, E5, and F3 — to match the unique needs of individual user roles. This guide covers detailed feature comparisons, cost analysis, right-sizing strategies, mix-and-match licensing with add-on options, and EA negotiation tactics to help enterprises optimize their Microsoft spend without sacrificing security or productivity.
Microsoft offers multiple Microsoft 365 Enterprise SKUs to cater to the diverse needs of users. Understanding the differences is critical — a common mistake is assuming one size fits all.
Standard productivity and security needs. Full Office apps, Exchange Online, SharePoint, Teams, Windows 10/11 Enterprise, Azure AD P1, Intune, basic DLP and eDiscovery. The "sweet spot" for most knowledge workers at ~$34/user/month.
Everything in E3 plus advanced security (Defender suite, Azure AD P2), advanced compliance (Advanced eDiscovery, Customer Lockbox), Power BI Pro, Teams Phone System, and Audio Conferencing. ~$57/user/month — roughly 50–70% more than E3.
Stripped-down plan for frontline/firstline workers. Web and mobile Office apps (no desktop), 2 GB mailbox, 2 GB OneDrive, Teams access, basic Intune/Azure AD P1. Just ~$8/user/month — a fraction of E3/E5 cost.
CIOs should align each user's role with the appropriate license: give power-users and high-risk roles the advanced tools of E5, standard knowledge workers the cost-effective E3, and task-based workers the lightweight F3. This ensures everyone has what they need without paying for extras that go unused.
Microsoft 365 E3 is the standard enterprise plan that delivers the full Office productivity suite and essential enterprise services without the extras that drive up cost.
Full desktop versions of Office apps (Word, Excel, PowerPoint, Outlook, etc.), plus web and mobile app access for all users.
Exchange Online with 100 GB mailbox and archive capabilities, SharePoint and OneDrive for Business (1 TB per user, expandable), Microsoft Teams for meetings and chats.
Windows 10/11 Enterprise OS licensing, Azure AD Premium P1 for identity management, Microsoft Intune for device management, basic Office 365 DLP, MFA support, and standard eDiscovery.
A regional bank equipped 90% of its employees with E3 to provide Office apps, email, and baseline security while keeping costs contained. Only specialists in IT security and data analysis were assigned higher-cost licenses — ensuring broad productivity without incurring unnecessary premium costs.
E3 costs approximately $33–$36 per user per month at list price. For many organizations, E3 hits the "sweet spot": comprehensive enough to support enterprise-grade productivity and security, but not over-engineered for users with routine needs.
Microsoft 365 E5 is the top-tier plan that includes everything in E3 plus a suite of advanced features, designed for organizations requiring best-in-class security, analytics, and communication.
Defender for Endpoint (EDR), Defender for Office 365 Plan 2, Azure AD P2 (risk-based conditional access, Privileged Identity Management), Cloud App Security. Far beyond E3's basic security.
Advanced eDiscovery, Audit (longer retention + analytics), Customer Lockbox, advanced information protection. Critical for heavily regulated industries (finance, healthcare, government).
Power BI Pro included for rich data visualizations. Workplace Analytics and Viva Insights (advanced mode) for organizational productivity analysis. E3 users would need separate Power BI licenses.
Teams Phone System and Audio Conferencing out of the box — full PBX-like calling functionality and dial-in conferencing. E3 users would require additional licenses for telephony.
E5 is approximately $57/user/month — roughly 50–70% more than E3. In enterprise agreements, that gap can represent millions of dollars over a multi-year term. E5's value proposition is consolidation: it may eliminate the need for third-party email security gateways, standalone BI tools, or third-party call systems.
A global professional services firm initially considered upgrading all 5,000 employees to E5. After analysis, they identified only about 1,000 users (cybersecurity, compliance, and data science roles) would actively use E5 features. They licensed those 1,000 on E5 and kept 4,000 on E3 — resulting in estimated annual savings of several million dollars.
Not every employee works at a desk or needs the full Office suite. Microsoft 365 F3 is designed for frontline workers — staff on the shop floor, in the field, or in customer service roles — who require basic communication and productivity tools but not a full PC software environment.
Web and mobile access to Office 365 apps (Word, Excel, PowerPoint online), but no desktop Office applications. Suitable for users on shared devices, tablets, or phones.
Exchange Online kiosk plan — typically 2 GB mailbox per user with Outlook Web Access only (no Outlook desktop client). OneDrive limited to 2 GB per user.
Full Microsoft Teams access for chat, meetings, and calls. SharePoint sites, Yammer communities, and Shift scheduling tools for frontline connectivity.
Azure AD P1 and Intune for basic device management and security policies on work phones or shared terminals. MFA and conditional access supported.
At approximately $8/user/month, F3 licenses are ideal for retail floor employees, manufacturing line workers, hospitality employees, and hourly service workers who mainly need to check email, view documents, and communicate via Teams. Providing E3 or E5 to these users would be overkill and cost-prohibitive.
| Plan | Cost (USD/user/mo) | Key Features | Ideal Use Cases |
|---|---|---|---|
| Microsoft 365 F3 | ~$8 | Office web/mobile only (no desktop) · 2 GB mailbox (OWA only) · 2 GB OneDrive · Teams, SharePoint, Yammer · Shift scheduling · Intune + Azure AD P1 | Frontline/firstline workers: shift employees, retail, factory, or field staff needing basic email & Teams |
| Microsoft 365 E3 | ~$34 | Full Office suite (desktop + web + mobile) · 100 GB mailbox + archive · 1 TB OneDrive · Exchange, Teams, SharePoint enterprise · Windows 10/11 Enterprise · Azure AD P1, Intune · Basic DLP, eDiscovery, MFA | Information/knowledge workers: employees who create documents, use email & meetings heavily, need standard enterprise security |
| Microsoft 365 E5 | ~$57 | Everything in E3, plus: Defender for Endpoint P2 · Defender for Office P2 · Azure AD P2 · Cloud App Security · Advanced eDiscovery & Audit · Customer Lockbox · Power BI Pro · Teams Phone System · Audio Conferencing | Power users & high-security: executives, analysts, IT security, compliance, regulated departments; organizations consolidating tools into M365 |
For a 10,000-user enterprise: deploying all E5 costs ~$6.84M/year. A mix of 70% E3, 20% F3, and 10% E5 costs approximately ~$3.4M/year — a potential saving of over $3M annually. The feature gap for most users is negligible when E3 meets their needs.
One of the most important licensing strategies for a CIO is "right-sizing": ensuring each employee has the least expensive license that still meets their needs.
Analyze the roles within your organization and the tools each role utilizes. Survey departments or review usage logs to identify how extensively users utilize advanced features like Power BI, Defender, or phone system capabilities.
Cybersecurity team, legal/compliance officers, senior executives handling sensitive data, data scientists needing Power BI Pro. Typically 10–20% of users.
Analysts, marketers, finance staff, developers, managers. They use email, Office apps, and Teams daily. E3 is usually sufficient. Only upgrade to E5 if a specific need arises.
Retail associates, factory technicians, field sales reps, contractors. They primarily need communication tools and may occasionally view or input data.
Leverage Microsoft 365 admin reports and analytics to identify which features are being utilized. If you've deployed some E5 licenses, check if those users are actually using E5-only features. If not, consider downgrading to E3. Right-sizing is an ongoing process — review license allocations quarterly or biannually as roles change.
One large enterprise found that after a year of E5 for all users, only a fraction engaged with advanced security dashboards or Power BI. They shifted hundreds of users back to E3 and reallocated E5s to only those who truly needed them — achieving substantial cost savings with no loss in productivity or security.
Microsoft's licensing model is flexible — you do not have to choose a single SKU for everyone. Many enterprises adopt a mix-and-match approach: for example, 70% E3, 20% F3, and 10% E5. All users can still collaborate; the difference lies in individual features.
Adds Defender suite, advanced threat protection, and Azure AD P2 to an E3 license. Useful if security is the only gap you need to fill for many E3 users — enhances security to E5 level without full E5 cost.
Gives E3 users access to Advanced eDiscovery, audit, Customer Key, and advanced information protection. Ideal for legal, HR, or compliance departments under strict regulatory mandates.
Adds enterprise voice calling in Teams for E3 users. No need to put everyone on E5 just to get telephony for a subset of users.
Standalone Power BI Pro licenses for any E3 or F3 user needing analytics capability — often cheaper than upgrading an entire group to E5 if they only lack the analytics piece.
Be cautious with piecemeal add-ons: if you need to add security, compliance, and calling to a large subset of users, the combined cost might approach or exceed E5. In such cases, full E5 could be more economical and simpler to manage. Always run the numbers — calculate the breakeven point where add-ons stop making financial sense.
Need help right-sizing your Microsoft 365 licenses before your EA renewal?
Microsoft Optimization →Choosing between E3, E5, and F3 isn't just a technical decision — it's a major factor in your Microsoft enterprise agreement negotiations.
Use planned E5 adoption as a bargaining chip. Large enterprises commonly negotiate 10–25% off E5 list price (or more for very large seat counts) in exchange for multi-year commitments or higher adoption. Don't accept the first quote — come armed with pricing benchmarks from peers.
Align negotiations with Microsoft's fiscal year-end (June 30) or quarter-end when sales teams have strong incentives to close deals. You might secure extra incentives — free add-on licenses, extended trials, or deeper discounts on E5.
If unsure about E5's value, negotiate a 3–6 month pilot for select E5 features or a limited number of seats. This validates benefits before full commitment and signals to Microsoft that you're not sold on E5 sight-unseen.
Be prepared to discuss remaining on E3 plus third-party security tools, or upgrading only a minimal set of users. The possibility that you could "walk away" from full E5 deployment gives you leverage. Even mentioning evaluating competitors (like Google Workspace) can add pressure.
Be wary of over-committing. It's better to slightly underestimate E5 license needs and add more later than to over-purchase and have idle licenses. Also avoid double-paying: if you invest in E5, plan to phase out overlapping third-party tools. Conversely, if you keep third-party solutions, stick with E3 and avoid paying for E5 features you won't use.
Categorize employees by department, role, or job function and assign the minimum required M365 SKU to each category. Executives and IT admins may receive E5; most office staff E3; frontline workers F3.
Use Microsoft 365 E3 as the default license for knowledge workers. Only upgrade individuals to E5 if a clear need is identified (specific security, analytic, or voice features). This prevents "license creep."
Deploy F3 licenses for employees who don't require full Office desktop apps or large mailboxes. This can dramatically cut licensing costs for large frontline teams while keeping workers connected via email and Teams.
Before purchasing E5 for capabilities like advanced security or compliance, evaluate add-on licenses. Often adding an E5 Security or Compliance package to E3 for a subset addresses needs at lower cost. Choose full E5 only when multiple premium features are broadly required.
Conduct periodic audits of M365 usage to ensure users are on the right plans. If E5 features aren't being utilized by certain users, consider downgrading. Maintain flexibility to upgrade as new needs arise.
Don't pay list prices — use benchmarks to get discounts, especially on E5. Leverage the promise of wider E5 adoption for better terms. Time negotiations around Microsoft's quarter/year-end.
When unsure about E5's value, run a pilot program. Enable a small group with E5 or specific add-ons. Use results (ROI, security metrics, user feedback) to decide if broader upgrade is justified.
If you invest in E5, retire redundant third-party tools (separate security, reporting, or conferencing subscriptions). Conversely, if you prefer third-party solutions, stick with E3 to avoid paying for overlapping E5 features.
Microsoft licensing evolves regularly. Monitor announcements (new bundles, price changes, Copilot additions). Being aware of changes allows you to adjust your strategy or renegotiate well before renewal.
If your organization may require more advanced capabilities soon, negotiate upgrade paths or pricing protections now (e.g., discounted step-up from E3 to E5 in year 2), so scaling up later is smoother and budgeted.
Our independent Microsoft licensing advisors help enterprises right-size their M365 mix, negotiate better EA terms, and eliminate redundant spend — saving millions without sacrificing security or productivity.