Why a Dynamics 365 License Audit Is Essential
Cloud subscriptions, such as Dynamics 365, can silently inflate your IT costs if left unchecked. Many enterprises simply renew the same license quantities each year by inertia, which means paying for “shelfware” (unused or underutilized licenses) by default.
A proactive license audit shines a light on this waste and ensures you’re not funding unnecessary licenses for another term. Read our ultimate guide to Microsoft Dynamics licensing and negotiations.
In short, enterprises that audit before renewals negotiate from a position of strength – armed with data on what they actually use.
Key reasons to audit your Dynamics 365 licenses now:
- Unchecked license growth leads to rising costs: Cloud license counts tend to increase over time. New users, added modules, and Microsoft’s periodic price hikes (e.g., the 2024 price increase of over 10% on many D365 plans) can quickly escalate spending if you’re not actively monitoring. Without oversight, you might be paying far more than necessary.
- Misassigned licenses = silent overspend: It’s common to find users with over-provisioned or duplicate licenses. For example, an employee might have a pricey full license but only use a few light features, or an ex-employee’s account may still have an assigned license. These misallocations don’t typically raise red flags day–to–day— they just quietly drain the budget in the background.
- Audit data = negotiation leverage: When you enter a renewal or true-up discussion with hard data from an internal audit, Microsoft’s sales team will realize you’ve done your homework. Audit results enable you to push back against upsells and inflated renewal quotes. Rather than negotiating blind, you can insist on right-sizing your contract based on actual usage. In short, a license audit gives you evidence to challenge assumptions and secure a better deal.
By treating license audits as a strategic imperative, CIOs and procurement leaders can transform what is often seen as a mundane compliance task into a powerful cost-control weapon. The following step-by-step framework will guide you through conducting a Dynamics 365 license audit that not only streamlines your licensing environment but also enhances your bargaining power with Microsoft.
For a basic understanding, read Dynamics 365 Base vs Attach Licensing Explained.
Step 1 – Inventory All License Assignments
The first step of a Dynamics 365 license audit is to document your entire licensing landscape. You need a single consolidated view of every license your organization is paying for and who’s using it.
Most enterprises have multiple Dynamics 365 modules and related services, so gathering this information may require pulling data from several sources.
Checklist for Step 1 – Building your license inventory:
- Gather all Dynamics 365 user licenses across all modules: Export the list of Dynamics 365 licenses from your admin portals (e.g., Microsoft 365 Admin Center or Dynamics admin center). Include all modules – Sales, Customer Service, Finance, Supply Chain, Field Service, etc. – and note how many licenses of each type you have and which users are assigned to them.
- Centralize data from IT, procurement, and business units: Review procurement records and consult with business unit IT leads to identify any licenses acquired through multiple channels. Sometimes departments spin up separate subscriptions (e.g., via a Cloud Solution Provider or credit card purchase) outside of central IT’s purview. Consolidate these into your master list so nothing is missed.
- Include Power Platform and add-ons: Don’t overlook related licensing that is often overlooked. This means Power Platform subscriptions (Power Apps, Power Automate flows running with premium connectors tied to Dynamics) and any add-on capacity purchased for Dynamics 365, such as extra data storage, AI features, or the new Dynamics 365 Copilot AI assistant. These add-ons and attachments carry their own costs, so they should be part of your inventory.
By the end of Step 1, you should have a complete inventory detailing every Dynamics 365 license and add-on your organization owns, how many of each, and who/what they’re assigned to. This comprehensive snapshot serves as the foundation for the audit – it’s challenging to optimize what you haven’t identified.
Many organizations are surprised at this stage by the sheer number of licenses in use or discover rogue subscriptions they weren’t aware of. That’s exactly why this step is vital: you can’t fix license sprawl until you see it all in one place.
Step 2 – Analyze Actual Usage vs. License Type
With the inventory in hand, the next step is to overlay actual usage data onto those license assignments. The goal here is to determine how each Dynamics 365 license is actually being utilized, and whether that usage justifies the license type and quantity.
Start by collecting metrics on user activity.
For Dynamics 365, this could include pulling user login reports, activity logs, or utilization dashboards for each app. Identify, for example, when each user last logged in and what features they’ve been using.
This may involve using the Microsoft 365 Compliance Center to export Dynamics usage logs or running built-in reports in each Dynamics 365 application (such as Sales or Finance) to view active users over the last 30 to 90 days.
Areas of focus for usage analysis:
- Underutilized full licenses: Identify users with minimal activity. If you have users with a pricey Enterprise license (for CRM or ERP modules) who log in infrequently or only perform basic read-only or update tasks, they might not need the full license. These are prime candidates to downgrade to a lower-tier license (such as a Team Member license, if applicable) or even to remove if they no longer need access. For instance, if Jane from Marketing has a Sales Enterprise license but hasn’t updated a record in months, that’s a red flag.
- Inactive or orphaned accounts: Identify any licenses assigned to users who are no longer active. Common culprits include accounts of employees who have left the company, contractors whose projects have ended, or test accounts that have been forgotten. Each inactive user with a license is essentially money thrown away. Your audit should list these out so they can be removed or reallocated.
- Mismatched license usage: Compare the features used to the license type. A user might be active daily but only using functions that a cheaper license covers. For example, someone using Dynamics 365 primarily for basic case management might not need a full Customer Service Enterprise license if a lighter license or a different approach (like a Power App) could cover their needs. Align the level of license to the level of usage.
At this step, it’s useful to quantify the gap. For each underutilized or inactive license you find, estimate the potential savings that would result from downgrading or canceling it. (“If we downgrade 50 Sales Enterprise users to Team Member at a fraction of the cost, we save $X per year.”) This builds the business case for optimization.
It’s not uncommon for a thorough usage analysis to reveal that 10-20% of Dynamics 365 licenses are not fully used, which represents significant cost savings.
Beyond cost, this exercise also helps ensure compliance – confirming that every active user has a proper license (ensuring no unlicensed users slip through) and that no one is assigned more licenses than needed.
Step 3 – Identify Duplicate or Misaligned Licenses
Now dig into the structure of your license assignments to catch any duplication or misalignment. This step ensures that each user has the correct combination of licenses, with no overlaps or inefficient configurations.
One common mistake in Dynamics 365 licensing is assigning a single user multiple “base” licenses for different apps, when Microsoft’s model allows for a cheaper alternative called “attach” licenses.
Under the Dynamics 365 licensing model, a user only needs one full Base license (the highest-cost license for their primary app) and can then obtain additional apps at a discounted rate as “attach” licenses.
For example, if one of your sales reps also needs to use the Customer Service module, you don’t have to buy them a second full license – you can attach a Customer Service license at a much lower price since they already have a Sales base license.
In practice, however, organizations sometimes erroneously assign two or more full licenses to the same person because different departments handled the provisioning or simply did so out of oversight.
How to spot and resolve duplicates/misaligned licenses:
- Check for multiple full licenses per user: Audit your user list for anyone who appears twice with different licenses. If John Doe has both a Dynamics 365 Sales Enterprise and a Customer Service Enterprise license as separate line items, that’s a red flag. He could likely be on one as a base and have the other as an attached license (which costs significantly less). Each user should have only one base license – verify that everyone meets this rule. Consolidating to base + attach not only cuts costs, it also simplifies your compliance tracking.
- Find overlapping licenses from decentralized purchasing: In companies without central governance, it’s possible that two departments bought licenses for the same person or role. For instance, the sales department assigned a license to a user for a CRM app, and the finance team separately assigned an ERP license to that user, not realizing it’s the same person. This might result in duplicate accounts or simply one user with two costly licenses, where one would do. Cross-check the inventory for duplicate names or email IDs across different license lists to eliminate overlaps.
- Review multi-app user assignments: Many Dynamics 365 users access multiple modules. Ensure they’re using the optimal licensing mix. Besides the base/attach issue, consider whether a different bundle or an alternative license type would better serve users with multiple apps. For instance, if someone only occasionally needs a second app, a Power Apps per-app license or a shared device license might cover that occasional use more cost-effectively than a full attachment. The key is to eliminate common overlap mistakes – no paying twice for capabilities one user could have via a single license package.
Catching duplicate or misaligned licenses often yields quick wins. It’s not only about cost recovery but also about compliance clarity. Microsoft’s licensing rules can be nuanced; by straightening out any misconfigurations (like mistaken double licensing), you avoid potential compliance issues and save money.
At the end of Step 3, each of your users should have a clean, efficient license assignment – with no duplicate full licenses – and the license type should align with how they use Dynamics 365.
Step 4 – Catch Hidden Cost Drivers
Beyond obvious user licenses, a thorough audit also looks at the less visible cost drivers in your Dynamics 365 environment.
These are the extras and edge cases that often don’t get attention during routine license management but can carry significant costs. Identifying and reining in these hidden expenses is crucial for truly optimizing your spend.
Consider the following areas in your audit:
- Underused add-on capacity: Many organizations purchase extra capacity for Dynamics 365 environments – whether it’s additional data storage, extra API calls, or AI capabilities. For example, you may be paying for 100 GB of additional Dataverse storage or for AI-driven features (such as Dynamics 365 Sales Insights or the new Copilot AI assistant) on a per-user basis. Check the utilization of each add-on. If that 100 GB of storage is mostly empty because you cleaned up data, or if only a handful of users are actually using the AI features you enabled for everyone, you have an opportunity to scale back. These add-on fees can be substantial, so reclaiming unused capacity (or right-sizing it to actual needs) can yield immediate savings.
- Overlooked Team Member and Device licenses: Microsoft offers lower-cost license alternatives, such as the Dynamics 365 Team Member license (a light-use license for basic read/write access across apps) and device-based licenses (one license tied to a shared device, used by multiple people in shifts). These options are far cheaper than full user licenses. In your audit, ask: Are we making full use of these where appropriate? For instance, perhaps your warehouse staff all have full Finance licenses but only use a shared terminal for basic inventory updates – a single Operations Device license might cover that scenario. Or you might find dozens of employees who just need to view data or run simple reports; they could be moved to Team Member licenses at a fraction of the cost of an Enterprise license. Failure to utilize these alternatives is a hidden cost driver – you’re paying for full licenses when a lighter (and cheaper) license would suffice.
- Shadow IT and duplicate subscriptions: “Shadow IT” refers to technology solutions procured outside official channels – and it absolutely happens with Dynamics 365. Your audit should identify any unofficial or duplicate Dynamics 365 subscriptions within the organization. Maybe a regional office signed up for a separate Dynamics 365 instance on their own, or a department leader bought a few licenses via credit card for a small project. These unmanaged subscriptions not only create security/compliance risks, but they also mean you’re likely paying twice for similar capabilities (and missing out on volume discounts by fragmenting your purchase). Identify any Dynamics-related expenditures outside the central IT budget and incorporate them into your license review. The fix might be to migrate those users into the corporate tenant and shut down the rogue subscription, thereby eliminating redundant costs.
By the end of Step 4, you’ll have uncovered the less obvious drains on your Dynamics budget – the premium extras no one’s using, the missed opportunities for cheaper license types, and any hidden deployments.
These findings are important because Microsoft’s focus (and thus most companies’ focus) is usually on the big-ticket user licenses. In contrast, cost creep often occurs in these hidden areas of the subscription. Addressing them ensures you’re not leaving any money on the table.
Step 5 – Build Audit Findings into Negotiation Prep
With the audit complete, you should have a clear picture of where licenses are not being used optimally.
Step 5 involves transforming these insights into an action plan for your upcoming renewal or negotiation with Microsoft. In other words, this is where you translate your audit data into dollars and a strategy.
Here’s how to leverage the audit findings for negotiation prep:
- Quantify the savings and adjustments: Summarize the audit’s outcome in financial terms. For example, “We identified 120 licenses that can be eliminated or downgraded, saving approximately $XX per year,” or “By switching 30 users from Base licenses to attach licenses for secondary apps, we reduce costs by 60% for those users.” Having concrete numbers on potential savings provides a target to aim for during the renewal. It also helps win internal support – executives respond to the bottom line. This quantification will be the backbone of your negotiation stance, proving that “our baseline needs to change.”
- Reset your baseline and requirements: Use the audit data to define what you actually need going forward. This might mean you enter renewal discussions by saying, “We only need 850 seats now instead of 1,000, and of those, 200 should be Team Member licenses instead of Enterprise, based on usage.” Essentially, you’re reframing the scope of the deal. Don’t let Microsoft simply base the new contract on your last one – proactively present your right-sized requirements. This adjusted baseline ensures you’re not paying for the ghosts of users past or capabilities not used.
- Leverage data to counter sales pressure: During negotiations, Microsoft’s reps might push bundle deals or claim you need this or that extra product. This time, you have evidence to push back. If Microsoft suggests expanding licenses, you can cite your audit: “Actually, our utilization data shows we’re at only 70% usage of current licenses, so we’re not looking to increase counts without demonstrated need.” If they propose a higher-tier package, you can respond: “Our analysis identified many users who don’t use the advanced features; we intend to downgrade those, not upgrade.” By referencing real usage statistics and audit facts, you undercut assumptions and hype. Microsoft will realize you’re negotiating on facts, not marketing – making it harder for them to justify price increases or unnecessary additions.
- Incorporate flexibility into the deal: Another negotiation angle is to use your findings to argue for more flexible terms. For instance, if your audit reveals fluctuating usage or likely reductions, push for contract provisions such as the ability to true-down license counts mid-term or more frequent adjustment windows. Microsoft might not readily allow it, but even getting concessions like a shorter contract term or the right to swap certain license types as needs change can be extremely valuable. Your intimate knowledge of your environment (thanks to the audit) lets you articulate why you need these safeguards.
Ultimately, a data-driven negotiation approach can save you a significant amount of money. You’re ensuring the renewal reflects current reality, not old assumptions.
Enterprises that do this homework can often negotiate not just lower quantities but also better pricing – because demonstrating that you’re willing to walk away from excess licenses gives you leverage to ask for discounts on the remaining ones.
Remember, Microsoft’s worst case is losing licenses entirely; they would rather keep your business at a lower volume (or price) than see you cut licenses and reduce their revenue. Use that to your advantage, backed by your audit evidence.
Governance Framework for Ongoing License Reviews
Conducting a one-time audit before a renewal is great, but the real power comes from baking license reviews into your ongoing IT governance. Cloud environments are dynamic – people join and leave, usage patterns shift, and new features roll out.
A governance framework ensures you continuously keep licenses optimized and avoid the familiar cycle of overspend creeping back.
Consider implementing the following governance practices:
- Schedule regular license audits or checkpoints: Rather than auditing only at renewal time, establish a cadence for license reviews. Many organizations find a quarterly or biannual audit cycle effective. For example, conduct a brief review every quarter to identify any obvious changes (such as personnel departures or new projects going live), and perform a more comprehensive audit annually. Regular internal “true-up” checkpoints enable you to track growth or shrinkage in usage throughout the year, so nothing comes as a surprise at renewal.
- Define clear rules for license assignment (role-based licensing) by tying your licensing to your HR roles and provisioning processes. This means creating a role-based license allocation policy – e.g., a new sales representative receives a Sales Enterprise license and a Team Member license for other applications, a customer service agent receives a Customer Service license, a field worker receives a device license, etc. By standardizing what license a given role should have, you prevent over-licensing at the onboarding stage. Similarly, establish who can approve exceptions (if someone genuinely needs a higher tier or an extra app, there should be a conscious decision made). This governance step ensures licensing is intentional and right-sized from the start for each user.
- Implement cross-functional accountability: Dynamics 365 licensing touches IT (technical administration), procurement (purchasing and contract management), and finance (budget monitoring). Make license governance a team sport. For instance, IT should track license usage and assignment changes every month, procurement should plan and execute true-ups/renewals based on that data, and finance should regularly review the spend against the budget and highlight any anomalies. By sharing responsibility, you’re more likely to catch issues (IT notices unused accounts, finance flags spend spikes, etc.) before they become expensive. Consider forming a small “license management committee” that meets periodically to review reports and decide on any reassignments or purchases.
- Use tools and automation: As part of governance, leverage whatever tools you have to make monitoring easier. Microsoft’s admin portals can send alerts for license assignment changes or give reports on active users. If your organization uses ITSM or identity management systems, integrate license tracking into user onboarding and offboarding workflows (so that, for example, when an employee exits, IT is prompted to remove their license immediately). Some companies invest in third-party license management tools or scripts to continuously analyze usage. The more you can automate the detection of idle licenses or mismatches, the less manual effort future audits will require.
An ongoing governance framework aims to prevent oversized license spend from accumulating in the first place. It’s much easier to keep the ship tidy as you go, rather than doing a massive cleanup every three years.
By making license review a routine part of business operations, you’ll maintain cost optimization and compliance quietly in the background.
And as a bonus, if Microsoft ever decides to audit you for compliance, you’ll have well-documented records and processes to show you’re in control of your license usage.
Strategic Recommendations for CIOs & Procurement Leaders
Stepping back, it’s clear that a Dynamics 365 license audit is not just a one-off task, but part of a broader strategy of controlling cloud costs and steering negotiations.
Here are some high-level recommendations for technology and sourcing executives to maximize the value of license audits:
- Be proactive, not reactive: Don’t wait until Microsoft issues an official audit notice or your renewal is two weeks away to scrutinize your licenses. Treat internal license audits as a proactive measure to reduce costs. By identifying inefficiencies early, you avoid last-minute scrambles and put yourself in a confident position long before you sit down at the negotiating table. This proactive mindset can save double-digit percentages of your Dynamics spend annually.
- Integrate audit results into all renewal planning: Make it a standard practice to review current usage before making any renewal or new purchase decision for Dynamics 365. Whether it’s your big Enterprise Agreement true-up or even a smaller add-on purchase mid-term, use what you’ve learned from audits to right-size every deal. This may involve adjusting quantities, switching to different license mixes, or advocating for shorter terms. Over time, Microsoft will learn that your organization never signs off on licenses without rigorous justification, which can also deter them from overselling you.
- Use audit insights to negotiate flexibility: Audit data doesn’t just help cut what you don’t need; it’s also a bargaining chip to get more favorable terms on what you do need. For example, if your audit reveals that a portion of licenses may become redundant due to an upcoming project change, negotiate for “swap rights” or conditional reductions where possible. If you discover that you can use attached licenses more, ask Microsoft for promotions or bundle pricing that encourages this efficient model. (Since it could mean less revenue for them, you might get resistance, but it opens a discussion.) Similarly, push for contract clauses that allow periodic adjustments. Vendors often prefer you locked in, but well-substantiated requests (backed by data) can sometimes win concessions like a mid-term license reduction option or added value elsewhere (e.g,. free training credits to help you utilize what you keep).
- Align audits with broader FinOps efforts: Many enterprises are adopting FinOps (Financial Operations) practices to manage cloud spend strategically. Dynamics 365 licensing should be part of that philosophy. In other words, include D365 in your cloud cost dashboards, KPIs, and continuous improvement plans. The same way you’d optimize Azure or AWS costs, apply those principles here: measure, optimize, repeat. By integrating license audits into your overall IT financial governance, you ensure the focus on optimization isn’t siloed. This also raises visibility at the executive level – when CFOs and CIOs see that ongoing savings are being unlocked via license management, it reinforces support for continuing those efforts.
Above all, create a culture of licensing savvy in your organization. Executives should encourage their teams to question whether a given license or module is truly necessary, and to celebrate when cost savings are achieved without compromising productivity.
Microsoft’s licensing can be complex and is certainly revenue-optimized on their end; it’s up to you to inject healthy skepticism and due diligence. By following these strategic practices, you’ll turn Dynamics 365 license management from a headache into a lever for value.
FAQ – Dynamics 365 License Audit
What’s the difference between an internal license audit and Microsoft’s official audit?
An internal Dynamics 365 license audit is a proactive measure you initiate to verify usage and optimize costs. It’s your organization reviewing itself – uncovering unused licenses, ensuring compliance, and gathering negotiation evidence. In contrast, Microsoft’s audit (or a Software Asset Management review) is initiated by Microsoft (or an auditor on their behalf) to verify you’re complying with license terms. The goal of their audit is to identify any shortfalls (e.g., more users than were paid for), which can result in penalties or true-up charges. Your internal audit focuses on cost control and preparedness, whereas Microsoft’s audit emphasizes compliance enforcement. By conducting regular audits, you not only save money but also ensure you’re well-prepared if Microsoft ever conducts an official audit.
How often should we run a Dynamics 365 license audit?
At a minimum, conduct a full audit annually, or a few months before any major renewal. Many organizations benefit from more frequent checks – say a quarterly light audit – especially in fast-changing environments. The cadence may depend on the level of dynamism in your user base and Dynamics usage. If you frequently add or remove users or deploy new modules, quarterly reviews will help catch issues early. The key is consistency: schedule it like a regular maintenance task. Regular audits ensure you continuously optimize and never let waste accumulate for too long.
Can we change license types mid-contract, or are we required to wait until renewal?
You typically have the freedom to reassign or adjust licenses for your users at any time – for example, you can remove a user’s Dynamics 365 license and assign a different one if their role changes. The billing aspect depends on how you purchased the licenses. If you’re on a monthly subscription (like the CSP program), you can usually reduce or switch licenses with short notice (e.g., drop a license at the end of the month). Suppose you’re under an annual or multi-year Enterprise Agreement. In that case, you can add licenses during the term (and pay pro-rated true-up costs), but generally cannot reduce the committed quantity until renewal. However, you can still repurpose licenses you’ve already paid for (assign them to other users or switch a user to a lower license while another user takes over the higher one). In practice, many companies will make informal adjustments – e.g., over-license by adding some cheaper licenses and just not use some of the expensive ones until they can formally drop them at renewal. The bottom line: you can change who has which license at any time for operational needs, but reducing the overall paid count usually has to wait until contract renewal (unless you negotiate flexibility upfront).
How do license audit findings impact renewal negotiations with Microsoft?
Your audit findings become a blueprint for the renewal. First, they let you right-size your order – you come to the table knowing exactly which licenses you don’t need to renew and where you might need fewer (or different types). This avoids simply rolling over last year’s contract with built-in fluff. Second, the findings are leverage for price negotiations: when you can demonstrate that, say, 20% of your licenses were unused and you’re prepared to cut them, Microsoft may offer a discount to retain some of that business. It also changes the conversation – it’s no longer Microsoft telling you what you need, it’s you presenting a data-backed case of what you will buy. In many cases, Microsoft’s sales team, seeing that you’re an informed customer, will focus on retaining your core business with better terms rather than pushing arbitrary additions. In short, audit findings empower you to negotiate a contract that fits your actual requirements and to push for any incentives or concessions to maximize value.
What’s the most common licensing issue discovered in Dynamics 365 audits?
The number one issue is over-licensing – paying for more than is used or needed. This often takes the form of users who have a full Dynamics 365 license but rarely log in or could function with a cheaper license. Another very common find is licenses assigned to departed or inactive users (e.g. someone left months ago, yet their license was never reallocated). These are classic examples of “shelfware.” We also frequently see mismatched licensing – for instance, companies paying for high-end plans or multiple modules for users who don’t require that level of access. Less common but impactful issues include not utilizing available attach-license discounts (resulting in excessive spending on multiple full licenses for a single user) and overlooking the more affordable Team Member licenses for occasional users. The good news is that all these issues are fixable once identified – and they translate directly into cost savings when resolved. The audit’s purpose is to identify these opportunities, allowing you to streamline your operations and prevent unnecessary spending.
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