Before entering a Microsoft agreement renewal, enterprises should conduct a thorough internal licensing usage review. This self-audit compares what you have licensed against what is actually in use. It empowers CIOs and sourcing professionals to identify unused licences, spot shortfalls, optimise allocations, and enter renewal discussions with data-driven leverage. This guide provides a practical 8-step template for conducting that internal audit.
Determine which Microsoft products and services to review. Ideally cover 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.
Identify unused licences to eliminate, discover under-licensed and over-licensed situations, and establish a clean Effective Licence Position (ELP) for negotiations.
Perform 3 to 6 months before EA expiration so findings inform your renewal strategy. Starting earlier gives you time to act on findings, reclaim licences, and fix compliance gaps before Microsoft sees them.
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.
Coordinates the review, ensures process is followed and results documented. This person owns the timeline and is accountable for delivering the final Effective Licence Position.
Provides deployment and usage data: M365 admin reports, server inventories, VM counts, Azure consumption data, and endpoint management information.
Gathers entitlements: purchase records, contracts, Microsoft Licence Statements (MLS), CSP invoices, and any other procurement documentation.
Quantifies costs of unused licences and validates spending data. Finance involvement ensures the business case for licence reduction is clearly articulated in renewal negotiations.
Verify whether users still need certain software. This is critical for user-based services. Only the business can confirm whether inactive users are genuinely done with a product or simply on leave.
Collect data on actual usage and deployments across all environments. Create a central spreadsheet or inventory consolidating all information. Each row should represent a product or SKU with columns for “Licences Entitled”, “Currently Deployed/Assigned”, “Actively Used”, and notes on usage levels. This forms the basis of your Effective Licence Position.
Pull M365 admin centre active user counts per subscription (E3, E5, etc.). Use Azure Portal and Cost Management for consumption data. Identify inactive accounts: assigned licence but no login in 30, 60, or 90 days depending on your threshold.
Run discovery tools or scripts to list Windows Server, SQL Server, SharePoint, and Exchange installations. Use SCCM/MECM or SAM tools. Capture version and edition information. Licensing costs depend heavily on these details: SQL Server Standard versus Enterprise, Windows Server Standard versus Datacenter.
Verify qualified devices and users for products licensed per user or per device (Windows Enterprise, Office installs). Cross-reference Active Directory with HR systems to identify departed employees who still hold licences.
For higher-tier licences (M365 E5), check if premium features are actually being used. Users with E5 but only using core Office apps may be fine with E3. The delta between E3 and E5 pricing is significant. Identifying these users can produce substantial savings.
In parallel with usage data, collect all records of what your organisation owns. Compare these against actual deployment to build the gap and surplus analysis.
List quantities of each product under your agreement. Include Server and Cloud Enrolments (SCE), any amendments, and true-up orders that modified quantities during the current term.
Volume licence entitlements report. Review for accuracy: ensure all affiliates and purchases are included. Note that the MLS may not include CSP or OEM purchases, which must be tracked separately.
Purchases via CSP, Open, MPSA, and any OEM or retail licences. Every licence counts. Organisations with multiple procurement channels frequently have incomplete records because no single system captures everything.
The last true-up showing where you added licences provides growth insight. Compare the current true-up position with original EA quantities to understand how the estate has changed over the term.
Compare EA, CSP, and MCA contract models in our guide to EA vs CSP vs MCA: Choosing the Right Agreement.
Compare usage versus entitlements to find discrepancies. This builds your Effective Licence Position (ELP).
Licences you have but are not using. For example, 1,000 Visio Pro licences purchased but only 600 in use means 400 potential cuts. In cloud: 500 E5 assigned but 450 active means 50 to remove or downgrade. Surplus licences represent direct cost savings at renewal.
Usage beyond entitlements represents a compliance gap. For example, 110 SQL Server Enterprise instances running but only 100 licensed. Address these before an audit finds them. Proactive remediation costs far less than audit-driven remediation.
Right number of licences but wrong edition or plan. For example, 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. The E5-to-E3 differential alone can save $15–$20 per user per month.
Users consuming two licences for the same service due to misconfiguration. For example, a user with both E3 and E5, or overlapping security add-ons that duplicate functionality already included in a higher-tier subscription. Eliminating this waste is immediate savings.
Do not act in a vacuum. Validate findings with stakeholders before making cuts. This step ensures you do not inadvertently cut something needed, and gets buy-in from business units.
50 inactive O365 accounts? Confirm with HR and IT that users have genuinely left the company or no longer need the service. Some accounts may belong to employees on extended leave, shared mailboxes, or service accounts that should not be removed.
A department has 100 Project licences but only 70 are active. Ask whether the 30 can be eliminated or whether there is seasonal usage not captured in the review period. Some tools are used heavily during specific business cycles.
Verify with the infrastructure team. Automated scanners can miss instances (e.g. SQL Server installed as part of another application) or double-count (e.g. clustered servers). Physical server counts versus virtual instance counts must be reconciled against the licensing model for each product.
If your review uncovers unused licences, start addressing them before renewal.
Reclaim licences from inactive users and put them back in the pool. Assign reclaimed licences before buying new ones. This is the single fastest way to reduce your true-up or renewal costs.
In Azure, shut down unneeded resources for immediate cost savings. Identify orphaned disks, idle VMs, over-provisioned databases, and unused App Service plans. Cloud waste compounds monthly.
Note every licence to terminate or reduce at renewal. No penalties for reducing quantities when an EA term ends. Microsoft expects you to right-size. Having documented evidence of actual usage gives you leverage to resist renewal proposals that assume historical quantities.
Resolve compliance shortfalls now. Better to quietly purchase a few licences than have Microsoft discover the issue in an audit. Proactive remediation at EA pricing is significantly cheaper than audit-driven remediation at list price with back-dated support fees.
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.
| 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. A well-documented ELP signals to Microsoft that you are a sophisticated customer who will not accept inflated proposals.
Internal audit 6 months before EA renewal discovered approximately 300 M365 E3 licences assigned to ex-employees or unused test accounts. These had quietly accumulated as people left or projects ended. Additionally, 100 users with E5 licences were not using any E5-specific features (only email and Office apps). The review led to a planned 300-seat reduction and 100 E5-to-E3 downgrades in the renewal, avoiding approximately 15% of Office 365 costs. Estimated savings: $200,000 over the 3-year term. The audit findings gave concrete leverage to negotiate a smaller, optimised EA.
Self-assessment found the firm had rapidly added Windows Server VMs to Azure that were not covered under existing licences (which only covered on-premises, not some Azure deployments). The internal review flagged this compliance gap before Microsoft’s auditors got involved. The firm addressed the gap by properly using Azure Hybrid Benefit and purchasing additional core licences. They avoided a potentially hefty true-up surprise. The CIO used this example to justify the importance of regular licence tracking to the CFO.
Before 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 approximately 600 Visio and 500 Power BI actually in use. They 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 cannot easily push licences you do not need if you have the facts.
Across all three examples, organisations that did their homework with internal licence reviews were better prepared for renewals and achieved substantially better outcomes, both in cost savings and compliance risk mitigation.
Do not 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.
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.
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.
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.
Treat the review as an opportunity: reassign purchased-but-never-allocated licences, remove services that are not 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.
Use the outcome as a negotiation tool. Confidently assert what you need (and what you do not). If Microsoft’s proposal includes licences above your demonstrated need, push back with data. Showing you have done an internal audit signals you are a savvy customer, deterring aggressive upselling and potentially discouraging formal audits.
If you lack resources or knowledge for a deep review, engage an independent licensing consultant. 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.
An independent licence usage review before renewal is the highest-ROI step you can take. Our Microsoft Optimisation Services cover licence inventory analysis, usage data gathering, ELP generation, shelfware identification, compliance gap assessment, right-sizing recommendations, and renewal negotiation support. Most engagements identify savings worth multiples of the advisory investment.
Explore Microsoft Optimisation Services →Start 3 to 6 months before EA expiration. This gives you enough time to gather data, validate findings, reclaim unused licences, fix compliance gaps, and build your negotiation position. Starting earlier is always better. Organisations that begin the review only weeks before renewal miss most optimisation opportunities.
An ELP is a reconciled view of your licence entitlements versus actual usage. It shows exactly what you own, what you are using, where you have surplus, and where you have gaps. The ELP is the foundation for renewal negotiations. It replaces guesswork with data, enabling you to negotiate based on what you actually need rather than what Microsoft assumes you need.
Compare assigned licences against active usage data. For M365, use admin centre reports to identify users with assigned licences who have not logged in for 30, 60, or 90 days. For on-premises products, compare discovery tool results against entitlement records. For Azure, review consumption reports for idle or underutilised resources. Cross-reference all findings with HR data to catch licences assigned to departed employees.
Yes. At renewal, you are free to right-size your commitment. There are no penalties for reducing quantities when an EA term ends. Microsoft expects organisations to adjust based on current needs. This is different from mid-term true-ups, which only allow increases under standard EA terms. Your documented ELP provides the evidence to justify reductions.
Microsoft provides several free tools: M365 Admin Centre reports, Azure Cost Management, the Volume Licensing Service Centre (VLSC), and the Microsoft Assessment and Planning (MAP) Toolkit for on-premises discovery. Third-party SAM tools (Snow, Flexera, ServiceNow SAM) can automate tracking across multiple vendors and provide more sophisticated reporting. A combination of Microsoft-native tools and a central tracking spreadsheet or SAM platform works best for most organisations.
With a documented ELP, you can counter Microsoft’s renewal proposal with hard data. If Microsoft proposes renewing 1,000 licences but your review shows only 800 in active use, you have evidence to negotiate for 800. Usage data prevents overselling, strengthens your position on pricing, and signals to Microsoft that you are a sophisticated customer who will not accept inflated quantities. This typically results in 10–25% savings compared to accepting the initial proposal.
Before renewal, ideally. Proactive remediation at your EA pricing is significantly cheaper than audit-driven remediation at list price. Additionally, resolving gaps before renewal puts you in a stronger negotiating position. You can bundle the additional purchases into the renewal discussion and potentially negotiate volume discounts. Waiting risks Microsoft discovering the gap during a formal audit, which gives them leverage.
Whether you need licence inventory analysis, ELP generation, shelfware identification, compliance gap assessment, or renewal negotiation support, our Microsoft licensing specialists deliver measurable savings as a fully independent advisor.