Microsoft Licensing True-ups: How to Avoid Costly Mistakes
The annual True-up process is pivotal for organizations with Microsoft Enterprise Agreements. It is the yearly reconciliation during which you must report any increase in usage of Microsoft products (such as additional licenses, new users, or extra software deployments) since your last agreement baseline.
Simply put, it’s when you “true up” your license count—paying for any usage growth over the past year—to ensure you remain compliant with your contract.
Managed correctly, a true-up is routine and predictable; handled poorly, it can result in surprise bills, compliance penalties, or wasted spending.
This article examines common true-up mistakes and provides best practices to avoid costly missteps.
Understanding the True-Up Process
Under a typical Microsoft Enterprise Agreement (EA), you commit to an initial license for a set number of users, devices, and products.
The true-up is an annual report and purchase in which you declare usage above the original commitment.
For example, if you licensed 100 product users but deployed 120 during the year, the true-up is when you purchase licenses for those 20 additional users retroactively.
True-ups ensure you pay for what you used and keep your licensing compliant. Importantly, most EAs require increases to be reported (you generally cannot reduce license counts mid-term – reductions or “true-downs” have to wait until the agreement renewal).
Key aspects of a true-up include:
- Annual usage reporting: You must formally report any increases in the number of licenses, users, or other metrics covered by the EA every year (often 30 days before your agreement anniversary).
- Payment for overuse: You are billed for incremental licenses or subscriptions added during the year. These are typically prorated to align with the agreement term (for instance, an added user license might be billed for the remaining months of the year).
- Compliance assurance: The true-up process is your opportunity to ensure your licensing is in line with actual deployments. It effectively resets your compliance position so that your licenses match your current usage going forward.
Failing to execute the true-up properly can have serious consequences. If you don’t account for additional usage, you risk being non-compliant, which could lead to penalties in a software audit and back payments for unlicensed use. Conversely, if you over-pay or over-provision “just in case,” you could waste budget on unused licenses. The goal is a precise true-up – no shortfall, but no excess spend.
Read Microsoft Licensing Metrics (Cores, Users, Devices).
Common True-Up Mistakes to Avoid
Microsoft true-ups involve many moving parts, and several pitfalls can trip up even experienced IT teams:
- Lack of Accurate Tracking: The most fundamental mistake is not having an up-to-date inventory of your Microsoft software deployments and user counts. If you aren’t tracking new installations or user onboarding throughout the year, missing something on the true-up is easy. This can lead to an unpleasant surprise when an audit finds unlicensed deployments that were never reported. Example: A company deploys several new SQL Server instances for projects but doesn’t update its license records. At true-up, they under-report and later face a compliance penalty for those instances.
- Last-Minute Rush: Procrastinating until the true-up deadline to gather data often results in errors or omissions. Rushed true-up reports might overlook deployed software, miscount users, or lack the documentation to substantiate the numbers. A last-minute scramble means you have little time to vet the data or explore cost-saving adjustments.
- Overlooking Cloud Services: Many organizations focus on on-premises software but forget that cloud services (like Azure VMs or additional Microsoft 365 subscriptions) acquired during the year may also need to be true-up if they’re under the EA. Ignoring cloud usage growth is a frequent mistake. Example: An IT department adds several Azure virtual machines for a new app, assuming Azure’s pay-as-you-go covers it. If those VMs are part of an EA enrollment (like an Azure plan under the EA), they must also be reported in the true-up. Not doing so under-reports usage.
- No Internal True-Up Preparation: Some organizations treat the true-up as a once-a-year scramble rather than a year-round process. Without interim checks, they may discover too late that they’ve exceeded entitlements or purchased licenses they didn’t deploy (which could have been deferred). This reactive approach can lead to either compliance gaps or wasted spend.
- Assuming True-Up Can Reduce Licenses: A common misconception is that the true-up is a time to remove or reduce license counts if usage went down. In reality, an EA true-up only accounts for increases. If your usage decreased (e.g., you offboarded 50 users), you generally cannot credit or “true-down” those licenses until the EA renewal. Organizations that don’t understand this may overestimate savings or fail to plan for the fixed costs on unused licenses until renewal.
Read Licensing Microsoft Products in Virtualized Environments.
Best Practices to Manage True-Ups Effectively
Avoiding costly true-up surprises comes down to diligent license management and proactive planning.
Here are key practices to ensure your true-ups go smoothly and align with actual needs:
- Maintain an Accurate Inventory Year-Round: Don’t wait for the true-up date to discover what’s deployed – maintain a continuous software asset inventory. Track every new server installation, user addition, or cloud service subscription as it happens. A centralized asset management system or licensing database can be used to record these changes. Keeping an up-to-date inventory means your true-up report is prepared in advance, with all the data at your fingertips.
- Conduct Regular Internal License Audits: Treat every quarter (or at least mid-year) as a mini true-up. Reconcile license entitlements versus actual usage on a regular schedule. By internally auditing your deployments, you can spot discrepancies early, for example, discovering that a development team installed Visio on 10 PCs without licenses, or that 30 provisioned Office 365 accounts belong to employees who left. Early detection allows you to address these issues (e.g., purchase needed licenses or reclaim unused ones) before the official true-up. Regular audits greatly reduce last-minute panic and minimize the risk of non-compliance.
- Leverage Tools for License Tracking: Microsoft provides tools like the Microsoft 365 Admin Center reports, Azure cost management, and the Microsoft Assessment and Planning (MAP) Toolkit to help collect usage data. Third-party Software Asset Management (SAM) tools can automate license tracking across on-prem and cloud environments. These tools can generate reports on user counts, installations, and consumption that feed into your true-up. Automation reduces human error and ensures you have detailed records (e.g., how many SQL Server cores are running, or how many users activated Visio) to back up your true-up submissions. Investing in SAM tools is often far cheaper than a true-up mistake or compliance fine.
- Plan for Changes and Growth: Anticipate how organizational changes affect licensing and budget accordingly. If you know a new project will require 50 SQL Server licenses next quarter, or you’re acquiring a company with 200 additional employees, start accounting for those in your license plan now. Planning allows you to negotiate better pricing for the expected true-up or consider more cost-effective licensing options. It also prevents “shock” true-up costs – you’ll have set aside funds for the additional licenses rather than being blindsided. Engaging your procurement and finance teams in forecasting license needs can make true-up expenses predictable and approved in advance.
- Engage with Microsoft (and Your Advisors) Early: Maintain open communication with your Microsoft account manager or licensing reseller throughout the year. If you’re unsure how a certain deployment might be licensed under your EA, ask before you deploy. Microsoft reps can guide you on how to correctly license new scenarios – for example, whether a new Power BI deployment falls under your existing agreement or needs an add-on. Before the true-up, you can also seek confirmation of how any new products will be priced. Additionally, involve an independent licensing advisor if you have one; they can double-check your counts and identify any areas of concern to discuss with Microsoft. Early communication can prevent misunderstandings and ensure no surprises on either side when the true-up is finalized.
- Start the True-Up Preparation Early: Treat the true-up like a project with a timeline. Begin the formal data gathering and reconciliation at least a month or two before the report is due. This lead time gives you a buffer to resolve any anomalies – for instance, if your inventory shows more usage than you expected, you have time to investigate why and take corrective action (maybe some installs can be removed or moved to different licensing). By starting early, you also ensure that the necessary executives have time to review and approve the true-up purchase, and that you can double-check all figures. The result is an accurate and complete submission, avoiding last-minute mistakes that could cost money. As the saying goes, “No surprises” is a primary goal – neither you nor Microsoft should be caught off guard by the true-up results.
- Reclaim and Reallocate Before You True-Up: A highly effective cost-saving practice is identifying unused or underused licenses before submitting your true-up. Perhaps you have 50 Visio users on paper. Still, only 30 people used Visio in the last 6 months – you might be able to reassign those 20 licenses to cover new needs instead of purchasing more. Similarly, check for dormant cloud subscriptions or installations that can be retired. By re-harvesting licenses and cleaning up inactive accounts, you ensure your true-up purchase is only for genuinely needed licenses. This housekeeping can sometimes significantly cut your true-up bill. (Note: While you cannot reduce your committed count for the current term, you can often reassign licenses internally – e.g., uninstall software from unused systems and use those licenses for new installations, which avoids unnecessary net-new purchases.)
- Consider Independent Expert Review: True-ups can be complex, especially in large enterprises with many product deployments. Engaging an independent licensing expert or SAM consultant to review your true-up data can provide an extra layer of assurance. These experts may spot anomalies or opportunities that your internal team missed. For example, an expert might notice that you are planning to true-up certain SQL Server licenses that could have been covered by existing licenses with Software Assurance (via License Mobility) at no extra cost, saving you money. Or they might help optimize the mix of license types (perhaps suggesting an EA amendment or alternative subscription for a cheaper outcome). An external review can validate that your true-up strategy is compliant and cost-efficient.
Conclusion: A Microsoft true-up should never be a panic-inducing event. By treating licensing as a year-round responsibility – tracking usage, staying ahead of changes, and regularly auditing – your annual true-up becomes a straightforward confirmation of what you already know.
The key to avoiding costly mistakes is proactivity: Know your environment and growth plan, and give yourself ample time to reconcile and correct before the deadline. With disciplined management and the right expertise, you can approach each true-up with confidence that there will be no financial surprises or compliance issues.
In the end, a well-managed true-up keeps Microsoft satisfied and helps your organization optimize its software investment and budget effectively for the future.
