The 8-Step Internal Licensing Review
Define Scope & Objectives
Determine which Microsoft products and services to review — ideally all major licences: M365/O365, Windows Server, SQL Server, Dynamics 365, Azure consumption. If a full sweep is overwhelming, focus on highest-spend areas first.
Assemble the Review Team
An internal audit should be a cross-functional effort with clearly assigned ownership.
A common pitfall is not assigning clear ownership. Make sure someone is accountable for driving the project and chasing down all the pieces. An internal audit works best when it's understood who delivers which data and by when.
Gather Usage Data
Collect data on actual usage and deployments across all environments.
Compile Entitlement Records
In parallel with usage data, collect all records of what your organisation owns.
Compare EA, CSP & MCA contract models
EA vs CSP vs MCA Guide →Reconcile: Identify Gaps & Surpluses
Compare usage vs entitlements to find discrepancies. This builds your Effective Licence Position (ELP).
📉 Unused Licences (Surplus)
Licences you have but aren't using. E.g., 1,000 Visio Pro licences purchased but only 600 in use = 400 potential cuts. Cloud: 500 E5 assigned but 450 active = 50 to remove or downgrade.
⚠️ Under-Licensed (Shortfall)
Usage beyond entitlements = compliance gap. E.g., 110 SQL Server Enterprise instances running but only 100 licensed. Address before an audit finds it.
📦 Oversized Licences
Right number but wrong edition/plan. E.g., all users on E5 but only 10% of E5 features used — many could downgrade to E3 or E1. Right-size licence levels based on actual usage patterns.
🔁 Duplicate / Redundant
Users consuming two licences for the same service due to misconfiguration. E.g., a user with both E3 and E5, or overlapping security add-ons. Eliminating this waste is immediate savings.
Validate & Investigate Findings
Don't act in a vacuum. Validate findings with stakeholders before making cuts.
This step ensures you don't inadvertently cut something needed, and gets buy-in from business units.
Take Action on Quick Wins
If your review uncovers unused licences, start addressing them before renewal.
Document Everything in a Licence Review Template
Compile all findings into a clear report that can be used internally and in negotiations. This is your Effective Licence Position — the foundation for a data-driven renewal.
📋 Sample Licence Review Template
| Product / SKU | Entitled | In Use | Unused (to Cut) | Action Plan |
|---|---|---|---|---|
| Office 365 E5 | 1,000 | 950 | 50 | Renew 950. Consider downgrading some to E3 if E5 features unused. |
| Visio Plan 2 | 200 | 120 | 80 | Renew only 120. Drop 80 unused licences. |
| Windows Server Std | 50 cores | 50 cores | 0 | Renew all 50. Usage aligns with entitlement. |
| SQL Server Enterprise | 40 cores | 48 cores | –8 (gap) | Purchase 8 additional cores before renewal to resolve compliance gap. |
| Power BI Pro | 500 | 320 | 180 | Renew 320. Evaluate if some can use free Power BI instead. |
| Azure Consumption | $500K/yr | $450K/yr | $50K headroom | Reduce commitment to $450K or plan for growth before committing. |
Having this documented not only guides your renewal negotiation — you have a clear idea of what to ask for and can resist pressure to renew unused items — but also demonstrates good IT governance if Microsoft or auditors ask how you manage licences.
Real-World Examples
Eliminating Shelfware
Global ManufacturerInternal audit 6 months before EA renewal discovered ~300 M365 E3 licences assigned to ex-employees or unused test accounts. These had quietly accumulated as people left or projects ended — the company still paid for all of them. Additionally, 100 users with E5 licences were not using any E5-specific features (only email and Office apps).
Planned 300-seat reduction and 100 E5→E3 downgrades in the renewal — avoiding ~15% of Office 365 costs. Estimated $200,000 saved over 3 years. The audit findings gave concrete leverage to negotiate a smaller, optimised EA.
Ensuring Compliance
IT Services FirmSelf-assessment found the firm had rapidly added Windows Server VMs to Azure that weren't covered under existing licences (which only covered on-prem, not some Azure deployments). The internal review flagged this compliance gap before Microsoft's auditors got involved.
Addressed the gap by properly using Azure Hybrid Benefit and purchasing additional core licences. Avoided a potentially hefty true-up surprise. CIO used this example to justify the importance of regular licence tracking to the CFO.
Data-Driven Negotiation
Large RetailerBefore renewal, the enterprise inventoried all Microsoft licences and usage. Microsoft's sales team came with a renewal quote assuming 1,000 Visio and 800 Power BI Pro (based on previous EA). The company countered with data showing only ~600 Visio and ~500 Power BI actually in use.
Negotiated the proposal down to actual usage numbers, eliminating hundreds of unnecessary licences. Microsoft accepted because the customer had clear evidence. Concrete usage data prevents overselling — Microsoft can't easily push licences you don't need if you have the facts.
Recommendations
Schedule Regular Internal Audits
Don't wait for a Microsoft-initiated audit or the eve of renewal. Establish an annual or semi-annual cadence tied to the true-up cycle or a few months before renewal. Consistency is key — track usage trends over time, not just once.
Use Tools & Templates
Leverage SAM tools to automate data collection — M365 admin centre, Azure Cost Management, third-party SAM platforms. Develop or adopt a standard Licence Review Template (spreadsheet or dashboard) so you cover all bases each audit and can compare results year over year.
Involve the Right Stakeholders
IT knows deployment and user needs, procurement knows contracts and costs, finance knows budget impacts. Consider involving an internal auditor or compliance officer. Senior management support underscores the initiative's importance and ensures cooperation from all departments.
Document Everything
Keep meticulous records of findings and data sources. If you reclaim 100 licences, note how. If you identify 50 to cut at renewal, include that in a formal recommendation report. Documentation helps in negotiations, proves good faith in audits, and trains new team members on the process.
Optimise Before You Renew
Treat the review as an opportunity: reassign purchased-but-never-allocated licences, remove services that aren't needed, shut down unused Azure resources. The real waste in modern licensing is often over-licensing, not under-licensing — focus on eliminating excess. Any reductions now will be reflected in lower renewal needs.
Leverage Findings in Negotiations
Use the outcome as a negotiation tool. Confidently assert what you need (and don't). If Microsoft's proposal includes licences above your demonstrated need, push back with data. Showing you've done an internal audit signals you're a savvy customer — deterring aggressive upselling and potentially discouraging formal audits.
Consider Third-Party Expertise
If you lack resources or knowledge for a deep review, engage an independent licensing consultant (like Redress Compliance). They provide unbiased assessment, specialised tools, and often find savings or gaps that in-house teams miss. An external review validates your findings and adds credibility when negotiating with Microsoft.
📚 Related Reading
📂 Microsoft Case Studies
🔧 Microsoft Advisory Services
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