A Microsoft licensing review template for renewal. Audit your own usage before Microsoft does.

Know your own usage better than the account team does. An internal review of idle seats, E5 users who only use E3 features and duplicate add ons, started 9 to 12 months out, sets a lower count for the renewal.

Why run a Microsoft licensing review before renewal?

Your Microsoft 365 usage gets reviewed either way, and the internal review is the only version whose findings work in your favor. The account team reviews your usage at every renewal, through its own telemetry and with its own targets. A formal license audit arrives less often and with more paperwork.

The renewal then sets your cost for three years. Walk in without usage evidence and you accept Microsoft's view of your demand, which is rarely conservative. A company that skips its own review has handed the job to parties who profit from the answer.

Why does license waste build up in every Microsoft 365 tenant?

The causes are structural: they come from how licenses are assigned and bought, so every tenant we have reviewed showed the same three sources.

• Onboarding by default, offboarding by exception. A new hire gets a license on day one, often through a group rule in Entra ID. Leavers, contractors and people on long leave keep theirs until someone notices, so the idle pool grows through administrative drift alone.
• Tiers picked by role category. Procurement decides that managers, finance or IT get E5, and that choice is never checked against the features people use afterwards.
• Add ons that outlive the reason they were bought. A standalone security or voice product bought in one budget year keeps billing after a suite upgrade in the next year includes the same capability.

None of these is one person's error, so the cost lands on the company as a whole and returns every year unless someone owns the review.

What goes in a Microsoft usage review template?

The template sorts every paid seat into one of four outcomes, from the clearest waste to the judgment calls. Each tier has a signal you can pull from data you already hold, and an action with a named owner.

How should the review matrix be laid out?

Each row is a license type, each column is a decision input, and each output is a reclaim or downgrade action. Record the decision and the evidence behind it on the row. The renewal team can then defend every cut line by line, instead of presenting a spreadsheet of assertions.

The columns we use on most reviews:

1. License type and SKU, with purchased, assigned and available counts.
2. Channel and term: Enterprise Agreement, CSP or MCA, with the anniversary or renewal date.
3. Users with no activity in any service over the last 90 days.
4. Users never activated since assignment.
5. For E5 lines, users with evidence of each advanced workload.
6. Standalone add ons held by users whose suite already includes them.
7. Decision, owner, date actioned, and the seats released.

Where does Microsoft 365 usage data come from?

Mostly from reports you already have. Three native exports cover most enterprises without any new tooling, and a SAM tool earns its keep only at large scale or where on premises and cloud licensing have to be reconciled together.

• Active users report. In the Microsoft 365 admin center under Reports, then Usage. It shows trends over 7, 30, 90 or 180 days, with a last activity date per user for Exchange, OneDrive, SharePoint, Teams and Viva Engage, plus the license assign dates. Export it to CSV.
• License assignment export. Billing, then Licenses, shows purchased and available counts per product. In Microsoft Graph PowerShell, Get-MgSubscribedSku returns prepaid and consumed units for every SKU, which gives you the unassigned pool.
• Entra ID sign in data. In the Entra admin center, add the Last interactive sign in time column to the Users list and filter by date. Through Graph, the signInActivity property carries the last successful sign in, which requires Entra ID P1 or P2. Microsoft 365 E3 includes P1.

What will the reports get wrong on the first pull?

By default the usage reports hide user names, groups and sites, so the first export arrives anonymized. A global admin can switch this under Settings, then Org settings, Services, Reports, and your privacy team should approve that change before the review starts.

The reports also count only the services they track. A user who works mainly in desktop Office offline can look idle in the Exchange column, and service accounts sign in without generating any mail or Teams activity. Tier 2 exists for exactly these cases.

How do you run the review, tier by tier?

Work the tiers in order, starting with seats no one will miss and finishing with the downgrades that need feature evidence behind them. Measure activity per service and sign in recency. Assignment tells you only who holds a license.

Tier 1 and Tier 2: never activated and inactive seats

Tier 1 seats go back to the pool the same week. Tier 2 goes to line managers with a two week deadline, because some inactive users are on parental leave or secondment and will return. Anyone not confirmed in that window is reclaimed.

Before removing a license from a leaver, decide what happens to the mailbox. Exchange Online disconnects an unlicensed mailbox that has no hold and deletes it after 30 days.

Converting it to a shared mailbox first avoids that, and a shared mailbox up to 50 GB needs no license. An archive or litigation hold on it needs Exchange Online Plan 2, or Plan 1 with the Exchange Online Archiving add on.

Tier 3: when is an E5 user really an E3 user?

When a full quarter shows no use of the advanced security, compliance, voice or analytics features that separate E5 from E3. Job titles do not settle it. The evidence differs by workload:

• Voice. The clearest sign of Teams Phone use is a phone number assigned to the user and PSTN call records in the Teams admin center.
• Analytics. The Power BI activity log shows who views, creates and shares reports. A user who only views reports still needs Pro when the workspace is not on Premium or Fabric F64 capacity, so check views too.
• Compliance. eDiscovery Premium, insider risk and communication compliance are used by a small group of role holders, usually listed in Purview role assignments.
• Identity. Entra ID P2 features such as risk based Conditional Access and Privileged Identity Management apply to the users in their scope.

Security protections add a step to the downgrade. Several E5 features protect users through tenant policies, whether or not those users ever open a security console. Take downgraded users out of the scope of any E5 only policy on the same day, or you are still using the feature while paying for E3.

Which duplicate add ons should you sweep for?

Filter the assignment export for users who hold a suite and a standalone product in the same family. The pairs we find most often are Power BI Pro, Teams Phone Standard or Audio Conferencing next to E5, which includes all three. Standalone Entra ID P1 or Intune Plan 1 next to E3 is the other, since E3 carries both.

What is a usage review worth at renewal?

Put a dollar figure on the three pools before talks start, because that is the number any renewal discount should be compared with. Take a hypothetical company with 6,000 Microsoft 365 E3 and 2,000 E5 seats, priced at the list prices Microsoft set on July 1, 2026: $39 for E3 and $60 for E5 per user per month.

Over a three year term that is $1,765,800 at list. Discounts shrink the figure and your own mix will differ, but the shape holds. Reclaimed seats carry most of the value, and duplicates are the smallest line but also the easiest to cancel.

When should the review start, and how often should it run?

Start 9 to 12 months before renewal and then repeat the review every quarter. The sequence needs that much time: reclaim the tiers, hold the lower count for an observed quarter, and take the reduced baseline into the negotiation as established fact.

Why we disagree with the audit in the final 90 days

The common advice is to run a license audit shortly before renewal, once the quote is on the table. We think that is too late. A review run 90 days out produces an accurate report about waste that is already in the baseline, because Microsoft prices the count on the day of the quote.

The contract rules make it worse. Suite counts in most Enterprise Agreements cannot come down mid term, and CSP annual subscriptions allow seat reductions only in the first 7 days of a term. Reclaim early, reuse freed seats for new hires so the true up stays flat, and let the renewal fix the lower number.

The quality of the analysis matters less than whether it happened while the number could still move.

Why quarterly beats an annual audit

Every tenant drifts continuously, so an annual audit always finds a year of accumulated waste. With a standing quarterly matrix, Microsoft never gets an inflated count to price, the true up holds no surprises, and you never negotiate against your own drift. The mechanics of the annual count are in our EA true up guide.

What will the Microsoft account team say about your numbers?

Expect the account team to question the reduced count, because its own figures start from assigned licenses. These are the lines we hear most, with the replies that hold up:

• "Our data shows higher usage than your report." Ask which report and which date range. Then reconcile it against your matrix row by row, since Microsoft's figures usually count assignments.
• "E5 pricing depends on keeping the whole population on E5." Ask for the E3 price and the E5 price as separate lines. Then compare the discount on offer with the per seat saving on your downgrade list.
• "You cannot reduce counts until renewal." Agree, and point out that you reclaimed early for exactly that reason. The reduced count is the one you are renewing.
• "Those users will need E5 for Copilot and security later." Microsoft 365 Copilot is sold as an add on to E3 as well as E5, so Copilot alone is no reason to hold E5 seats. For security, ask for the roadmap in writing and a price hold on E5 step ups for the term.

What should the renewal contract say?

The review pays off only if the contract allows you to keep the lower count. Ask for these terms before you sign:

• A fixed E5 step up price for the full term, so moving users back to E5 later does not reopen pricing.
• Step down rights at each anniversary from E5 to E3, so the next quarterly review can still save money.
• Standalone add ons co terminated and removed where the new suite includes them.
• A discount that does not depend on seat volume, so renewing at the reduced count does not cost you the percentage you negotiated.

How these requests fit the wider negotiation is set out in our 2026 renewal negotiation strategy and the EA renewal playbook. The reset of the count itself is covered in the EA renewals brief.

What have our Microsoft usage reviews found since 2024?

Across the 30 to 40 reviews we led from 2024 to 2026, the gap between licenses assigned and licenses used appeared on every tenant. Three pools recurred with little variation:

• Idle seats. Inactive or unassigned licenses made up 5 to 15 percent of paid seats on almost every tenant we reviewed.
• The E5 mismatch. Users who exercised no advanced security, compliance, voice or analytics feature across a full quarter held 20 to 30 percent of E5 seats.
• Paying twice. On 10 to 20 percent of tenants, standalone add ons from earlier budget years were still billing next to suites that already included them.

The behavior around the numbers was just as consistent. Internal reports treated assignment as usage, and reviews were often scheduled inside the notice window, too late to change the baseline. Companies with quarterly matrices were the ones the account team could not surprise.

More on the E5 pool is in our E5 shelfware guide, and the wider library sits in the Microsoft knowledge hub.

What to do next

1. This week. Pull the three exports: active users per service, license assignments, and Entra sign in data. Switch off concealed names with privacy approval.
2. Within a month. Build the matrix and run the tier sweep. Reclaim never activated seats, send 90 day inactives to managers, and list feature idle E5 seats for downgrade.
3. At the same time. Sweep standalone add ons against what each assigned suite already includes, and flag the duplicates for cancellation at the next date your contract allows.
4. For the next quarter. Hold the lower baseline, reuse freed seats for new joiners, and document every decision so the renewal count is observed fact.
5. Before the quote arrives. Put the E5 step up price, step down rights and a volume independent discount on your list of contract requests.
6. From then on. Calendar the review quarterly with a named owner. Our Microsoft advisory team can run the first pass with you.

Frequently asked questions