How to Right-Size Your Microsoft 365 Licensing (and Stop Overpaying)
By Christopher Strong
After years of managing Microsoft licensing strategy for dozens of mid-market companies at Virteva, I’ve seen the same pattern play out hundreds of times: companies buying more than they need, paying for features no one uses, and treating their Microsoft renewal like a checkbox instead of a financial decision.
The pattern hasn’t changed. If anything, it’s gotten worse. Microsoft’s product catalog is more complex than ever, and most IT teams don’t have the bandwidth to audit what they actually have versus what they actually need.
The result? According to Gartner, organizations waste an average of 25% of their SaaS spending on unused or underused licenses (Gartner, 2024 SaaS Management Market Guide). For a 500-person company on Microsoft 365 E5, that can mean $150,000 or more per year going out the door for nothing.
With Microsoft’s announced price increases taking effect in July 2026, now is the time to get this right.
The Three Most Common Licensing Mistakes
After running license audits for companies ranging from 200 to 5,000 seats, I see three mistakes so frequently that they might as well be universal.
1. E5 Licenses Assigned to Users Who Only Need E3 (or Less)
Microsoft 365 E5 runs roughly $57 per user per month. E3 costs about $36. That $21 gap adds up fast when you multiply it across an entire organization, but the reality is that most users don’t need the features that differentiate E5 from E3.
E5 includes advanced capabilities like Power BI Pro, Microsoft Defender for Office 365 Plan 2, and Audio Conferencing. These are valuable for certain roles. Your security team, your data analysts, your executives who dial into conference bridges internationally. But your front-desk staff? Your warehouse team? Your accounts payable clerk who lives in Excel and Outlook? They’re doing just fine on E3, or in some cases, an F3 frontline worker license at $8 per month.
The problem is that most companies default to a single SKU across the board because it’s simpler to manage. Simplicity has a cost, though, and it’s usually five or six figures annually.
2. Unused Power Platform and Add-On Entitlements
Here’s something that surprises a lot of IT directors: your existing Microsoft 365 licenses already include capabilities that many organizations are paying third parties to provide.
Every E3 and E5 license comes with Power Automate, Power Apps, and Microsoft Forms. Every E5 includes Power BI Pro. Yet I routinely find companies paying separately for workflow automation tools, simple app builders, or standalone survey platforms that duplicate what they already own.
A healthcare administration client I worked with was spending $40,000 a year on a third-party forms and workflow tool while their Power Automate entitlements sat completely untouched. We migrated their five most common workflows to Power Automate in under three weeks. That’s $40,000 back in the budget, every year, with no reduction in functionality.
The flip side is also true. Some companies are paying for Power Platform add-ons (premium connectors, additional AI Builder credits) that nobody has configured or adopted. If you bought it during a renewal negotiation because it sounded useful but never actually deployed it, you’re burning money.
3. Licensing That Doesn’t Reflect How People Actually Work
Organizational needs change faster than licensing agreements. People leave, roles shift, departments reorganize. But license assignments tend to stay static.
Forrester research indicates that 30-35% of SaaS licenses in mid-market companies are assigned to inactive or departed users at any given time (Forrester, 2024 SaaS Waste Report). Some of that is delayed offboarding. Some is “just in case” provisioning that never gets cleaned up. Either way, you’re paying full price for empty seats.
Beyond simple headcount issues, there’s the question of role alignment. A company that moved half its workforce to hybrid or remote may have invested heavily in Microsoft Teams Rooms licenses and Audio Conferencing add-ons, only to find that most meetings now happen from laptops with headsets. The infrastructure spend made sense two years ago. It may not make sense today.
The July 2026 Price Increase Changes the Math
Microsoft has confirmed price increases across several 365 SKUs effective July 2026. While the exact percentages vary by region and agreement type, commercial customers in the US can expect increases in the range of 5-10% on core plans.
For a company that’s already over-licensed, this means your waste gets more expensive automatically. A 500-seat organization overpaying by 25% on E5 licensing today could see that waste grow by another $10,000-$15,000 annually once the new pricing kicks in, without adding a single user.
The window for optimization is right now, before your next renewal locks in the new rates. Companies that right-size before July will save at the current price and avoid compounding the waste at the higher one.
What a Proper License Audit Looks Like
A real licensing optimization isn’t just pulling a report from the Microsoft 365 admin center and counting empty seats. That’s a start, but it misses the strategic layer.
At Virteva, our license reviews follow a three-phase approach. First, we pull usage telemetry from Microsoft 365 to understand what features and services each user actually touches over a 90-day window. Second, we map those usage patterns against role profiles to identify where downgrades, upgrades, or reassignments make sense. Third, we model the financial impact across multiple scenarios so you can see the tradeoffs clearly before making any changes.
As a Microsoft Cloud Solution Provider (CSP) partner, Virteva manages licensing directly, which means we can adjust seat counts, swap SKUs, and apply changes without going through a separate reseller or waiting on Microsoft volume licensing timelines. Changes can take effect within a billing cycle, not at the next annual renewal.
The goal isn’t just cutting costs (though that’s usually the immediate win). It’s making sure your licensing posture actually matches your business. If your company is rolling out Microsoft 365 Copilot, for example, that changes the calculation. Copilot requires an E3 or E5 base license, so the audit needs to account for where your AI strategy is headed, not just where your usage sits today.
Quick Wins You Can Check This Week
You don’t need a full engagement to start finding savings. Here are a few things your IT team can look at immediately.
Pull the Microsoft 365 usage reports (Admin Center > Reports > Usage) and identify any user who hasn’t signed in within 90 days. Check whether those accounts still need an active license or can be converted to shared mailboxes. Review your current SKU mix by exporting your license assignment list and comparing it against the feature sets at each tier. If more than 20% of your E5 users never open Power BI, Teams Phone, or Defender advanced features, you likely have downgrade candidates. Finally, inventory any third-party tools that overlap with included Microsoft 365 capabilities, particularly in workflow automation, surveys, e-signatures, and project management.
These checks won’t give you the full picture (usage telemetry and role mapping require deeper analysis), but they’ll tell you whether optimization is worth pursuing. In my experience, it almost always is.
Making Licensing Part of Ongoing IT Strategy
The companies that get the most value from Microsoft 365 don’t treat licensing as a once-a-year renewal exercise. They build it into their IT advisory process and revisit it quarterly as headcount shifts, new tools roll out, and Microsoft updates its product lineup.
This is especially important for mid-market organizations running hybrid Microsoft cloud environments. When you’re managing a mix of 365, Azure, and on-premises infrastructure, licensing decisions in one area ripple into others. An Azure AD P2 license included with E5 might eliminate the need for a standalone identity security tool. A Teams Phone Standard license might replace a legacy PBX contract. These connections are easy to miss when licensing lives in a spreadsheet instead of a strategy.
At Virteva, we treat licensing management as part of a broader conversation about how technology supports the business, not as a procurement exercise. Our deep Microsoft partnership and direct CSP relationship mean we’re looking at your licensing through the lens of people who understand both the product catalog and the business decisions behind it.
Stop Overpaying Before July
If your Microsoft 365 renewal is coming up in the next six months, or if you haven’t audited your licensing in over a year, the July 2026 price increase makes this the highest-leverage moment to act.
Virteva offers a complimentary Microsoft licensing review for mid-market companies. We’ll assess your current SKU assignments, identify waste, and show you exactly where the savings are, with no obligation to make changes through us.
