How to Right-Size Your Microsoft EA Before Renewal
Executive Summary: Before renewing your Microsoft Enterprise Agreement, it’s essential to right-size your licensing to avoid overspending.
This article explains how to cut unused licenses, adjust for changes in workloads, and plan for realistic growth so your next EA term matches your actual needs and budget.
Read about Microsoft EA Renewal Strategies.
Audit Your Current License Usage
The first step in right-sizing is to thoroughly inventory your existing Microsoft licenses and how they’re being used.
Conduct an internal audit:
- Gather Usage Data: Pull reports from your Microsoft 365 Admin Center, Azure Portal, and any software asset management tools to see who uses what. Identify inactive user accounts, dormant mailboxes, or licenses that haven’t been accessed in the last 3–6 months.
- Compile a License Baseline: Create a list of all licenses in your EA (Office 365, EMS, Windows, Dynamics, Azure, etc.), along with quantity and assigned users or devices. This baseline lets you spot discrepancies between what’s allocated and needed.
- Spot Underutilization: Look at feature usage within product suites. For instance, if you have 1000 users on Office 365 E5, how many actively use E5-specific features (advanced analytics, phone system, etc.)? If only 200 users use those extras, it flags a potential to downgrade 800 users to cheaper E3 licenses.
Industry studies show enterprises waste millions annually on unused licenses. By quantifying your waste, you highlight exactly where to save.
Read Microsoft EA Renewal Strategy: What to Review Before You Sign Again.
Eliminate Unused and Inactive Licenses
With your usage audit in hand, the next step is to cut out the dead weight:
- Reclaim Licenses from Departed Staff: Ensure any user who left the company or no longer needs a service is removed from the EA. It’s common to find hundreds of assigned licenses tied to former employees because the license was never re-harvested. Reclaiming these means you won’t renew them. One Fortune 500 firm, for example, discovered over 3,000 inactive Office 365 accounts before renewal, eliminating them, and saved roughly $1 million annually.
- Cancel Unused Services: Identify any Microsoft services or add-ons that were bought but hardly used. Maybe you enabled Power BI Pro for everyone, but only a small analytics team uses it. You may have purchased 500 Visio licenses, but only 50 are in use. Remove or reduce those allocations to what’s used. This might mean trimming that product from the EA or only licensing it for the subset of users who need it.
- Consolidate Redundant Tools: If you have overlapping solutions (like paying for a third-party security product while Microsoft 365 includes similar functionality), decide if you can eliminate one. Dropping a redundant vendor can allow you to reduce the corresponding Microsoft licenses. For example, suppose you’re using Zoom or Cisco Webex but have Teams as part of Microsoft 365. In that case, you might standardize on Teams, then adjust your Microsoft licensing to remove standalone conferencing licenses or lower your bundle needs.
Companies often cut 10–30% of their EA licenses and costs by trimming aggressively. Microsoft won’t volunteer to reduce your count, but remember: at renewal, it’s your right to drop anything you don’t need.
Read Microsoft EA Renewal Strategy: What to Review Before You Sign Again.
Potential Savings from Right-Sizing (Hypothetical)
| Over-Licensing Issue | Example Scenario | Right-Sizing Action | Est. Annual Savings |
|---|---|---|---|
| Underutilized premium licenses | 800 users on E5 but only need E3 features | Downgrade 800 users from E5 to E3 | ~$1.44 million (800×$15×12) |
| Unused licenses | 3,000 E3 licenses assigned to inactive users | Remove 3,000 licenses from renewal | ~$720,000 (3000×$20×12) |
| Redundant software | 450 Visio licenses paid for but not used | Drop 450 licenses (keep 50 actually used) | ~$108,000 (450×$20×12) |
Optimize License Levels to Match Needs
Right-sizing isn’t only about how many licenses, but also which type of licenses each user needs:
- Tailor by Role/Profile: Not every employee requires the same Microsoft bundle. Analyze usage by role or department. For example, finance or IT staff might benefit from the full Microsoft 365 E5 (with advanced analytics and security). Still, many other users may only need E3 or email/Teams (which could be an F3 or Exchange Online plan). Develop user profiles (power user, standard user, frontline worker, etc.) and assign the most cost-effective license to each group.
- Use Frontline and Basic SKUs: Microsoft offers special licensing for frontline or light-use employees (e.g., Microsoft 365 F3 or Office 365 F3) that cost a fraction of an E5/E3 license. If you have a large population of workers who share devices or only use email and a few apps, switching them to these lower-cost plans can yield huge savings while still covering their needs. For instance, an F3 plan might cost a fraction of an E3 – a huge difference when multiplied by thousands of users.
- Right-Size Add-ons: Check any additional licenses like audio conferencing, Power Apps, or security add-ons. If you bought company-wide coverage but only part of the organization uses a certain feature, scale back those licenses to the actual need. It’s often cheaper to give a small group of power users an add-on license than to put everyone on a higher-cost bundle just because a few need that feature.
The outcome of this tailoring is that you stop overspending on high-end licenses for people who don’t need them. It may require conversations to set expectations (for instance, explaining why some users will move from E5 to E3), but emphasizing the cost savings and re-investment opportunities will help gain buy-in.
Read Microsoft EA vs. CSP: Which Microsoft Licensing Model Fits Your Organization?.
Adjust On-Premises and Cloud Workloads
Right-sizing your EA also means adjusting for shifts in where and how you run workloads:
- Reduce On-Prem Software if Moving to Cloud: If your organization has been migrating from on-prem servers to cloud services, look hard at on-prem licenses (Windows Server, SQL Server, SharePoint, etc.) that you might not need as much in the future. For example, if you moved a bunch of workloads to Azure or SaaS alternatives, you could reduce the number of server licenses or client access licenses you renew. Don’t keep paying for infrastructure you’ve retired from or plan to retire soon.
- Optimize Azure Commitments: Many EAs include an Azure consumption commitment. To right-size, be very realistic (even conservative) with this figure. Use your actual Azure consumption data from the past year as a baseline. If you’re spending $X per year on Azure now, don’t commit to 2X without concrete projects to support that jump. It’s safer to commit a bit above current usage and add more later if needed, than to over-commit and end up paying for cloud capacity you don’t use. Negotiate flexibility (like annual adjustments or carryover of unused commitment) to avoid being stuck with an untenable promise.
- Leverage Hybrid Benefits: If you maintain an on-premises footprint while using the cloud, utilize programs like Azure Hybrid Benefit. This lets you apply your existing Windows/SQL Server licenses with Software Assurance to Azure VMs, reducing Azure costs. It’s a form of right-sizing that ensures you aren’t paying twice for the same workload. At renewal, that might mean keeping a few on-prem licenses with SA specifically to cover those hybrid rights in Azure rather than dropping them completely.
Always align your EA with your current technology direction: if you’re phasing out on-prem systems, reduce those licenses accordingly, and for cloud services, commit only to levels you can confidently achieve.
It’s better to start modest Azure commitments and scale up if needed than to lock in an oversized commitment you struggle to fulfill.
Plan for Future Growth – But Don’t Over-Commit
A right-sized EA should accommodate your future needs without you paying upfront for growth that may not materialize:
- Forecast User Growth Carefully: Work with HR and business units to project how headcount and software usage might change in the next 1–3 years. If you expect to hire 500 people next year, you’ll need to plan licenses for them, but you don’t necessarily need to buy all 500 on Day 1. With an EA, you can true-up annually for additional users. Often, it makes sense to renew for your current known user count and then add licenses during the term as growth happens, rather than paying a year or two in advance for people who haven’t been hired yet.
- Avoid “Safety Stock” Overbuying: Don’t let Microsoft (or internal caution) pressure you into overbuying “just in case.” Every license you pre-purchase and do not use immediately is tied up in your budget. Since the EA lets you add licenses mid-term at the negotiated price, use that as your safety net instead of buying excess upfront. For example, rather than renewing 10% extra licenses anticipating growth, renew what you need now and know you can true-up those additional licenses if and when the growth happens.
- Consider Subscription EA for Flexibility: If your industry is volatile or you anticipate possible downsizing and growth, consider an Enterprise Subscription Agreement instead of a standard EA. As mentioned earlier, the subscription version allows you to decrease license counts at each anniversary. If your user count goes down in year 2, you can drop licenses and costs accordingly (which you cannot do in a traditional EA). The trade-off is you don’t retain perpetual rights at the end, but if you’re mostly using cloud subscriptions now, that may be an acceptable trade for flexibility.
The bottom line: Size your EA renewal for what you reasonably expect and give yourself contractual ways to handle the unexpected. By avoiding overcommitment, you maintain financial flexibility.
Microsoft’s sales team might push for a larger upfront deal (they love locking in growth), but you are better served by a leaner agreement that you can expand later, rather than a bloated one you’re stuck paying for regardless of what happens.
Recommendations
- Conduct a Detailed Usage Audit: Inventory all your licenses and usage before renewal. Identify every unused or underused license. This is where to cut or reassign to save money.
- Remove the Waste: Don’t renew licenses that aren’t being used. Eliminating inactive accounts and unused software from your agreement will lower your costs.
- Optimize License Mix: Align license types to user needs. Use a mix of E5, E3, and F3 (or other appropriate plans) so each employee has what they need and not more. This avoids paying premium prices for users who don’t benefit from premium features.
- Adjust for Cloud Shift: Scale down on-prem licenses if those workloads have moved to Azure or SaaS. Right-size your Azure commitment to a realistic number, commit to what you’ll use and add later if needed, rather than overcommitting now.
- Leverage Flexible Terms: If uncertainty is high, consider an Enterprise Subscription EA or shorter-term licenses for parts of your environment through a CSP. Build flexibility into the plan to respond to growth or reduction without waste.
- Plan True-Ups Instead of Padding: It’s better to plan for yearly true-up additions than to pad your initial order with “maybe” usage. True-ups ensure you pay when value is delivered (when a user is onboarded or a project starts) instead of paying in advance.
- Engage Stakeholders Early: Communicate with department heads about potential changes in their license allocations (like downgrading some users’ licenses). Getting buy-in and understanding now will make the transition smoother and avoid surprises post-renewal.
- Negotiate with Data: When you sit down with Microsoft, use the data from your right-sizing exercise to drive the conversation. Show them the reduced counts and why – this strengthens your case for better pricing on the remaining licenses and prevents the “default” renewal that favors Microsoft.
FAQ
Q1: What does it mean to right-size an EA?
A1: Right-sizing an Enterprise Agreement means adjusting the scope of licenses and services to fit your actual needs (and nothing more). It involves removing unused licenses, choosing the correct license types, and setting commitments (like cloud spend) at realistic levels. The goal is to eliminate waste and only pay for the value you will use.
Q2: How do we figure out which licenses are unused before renewal?
A2: The best approach is to use available reporting tools. In Microsoft 365, for example, you can get reports on inactive users or last login dates. Azure has usage and cost analysis tools. Also, maintain good IT asset management practices: keep a record of who has what, and tie it to HR so you know to reclaim those licenses when people leave. Combining admin portal data with asset records lets you pinpoint licenses that haven’t been used in months.
Q3: We found many unused licenses – should we just remove them, or can we repurpose them?
A3: Always repurpose first if you have a need elsewhere. For example, if one department had 50 extra E3 licenses unassigned and another team needed 50, reallocate those instead of buying new ones. But if licenses are truly more than the organization (no foreseeable use), plan to remove them at renewal so you’re not paying for them in the future. In short: reassign what you can to avoid new purchases, and eliminate the rest.
Q4: What if some managers resist downgrading their team’s licenses?
A4: It’s a common concern. Present them with data showing that their team isn’t using advanced features, and assure them that a lower license won’t affect day-to-day work. Emphasize the cost savings and how the freed-up budget can fund other projects. Top-level support (like the CIO/CFO endorsing the effort) encourages department cooperation.
Q5: How can right-sizing affect our Microsoft relationship? Will Microsoft push back?
A5: Microsoft’s reps might push back subtly because a downsized agreement means less revenue for them. They may try to convince you to keep certain licenses or commitments by citing future needs or added value. However, stick to your plan if you have data to justify your cuts. It helps to explain the business reasoning calmly. Microsoft ultimately wants to keep your business, so they will renew even a reduced scope (after negotiating). Be prepared to defend your decisions with data, and involve your procurement or executives if needed. In many cases, Microsoft will respect a well-reasoned approach – they might not love a smaller deal, but they prefer that over losing the customer entirely.
Q6: How do we handle a big new project (e.g., deploying Dynamics or Power Platform) in our EA?
A6: Don’t over-buy for a project before it launches. One tactic is to include a minimal quantity (even just one license) for that product in the EA to lock in pricing, then add more via true-up as the project expands. In other cases, you might negotiate upfront for discount terms once you reach a certain usage. The goal is to align licensing costs with actual deployment – start small (pilot phase) and scale up when the project goes live, instead of paying for hundreds of licenses that sit unused for months.
Q7: Can we right-size our Azure costs as well?
A7: Yes, apply the same principles to Azure. Only commit to the cloud spend you truly use, and optimize the resources you have running. For example, eliminate or downsize idle VMs and services to reduce consumption. When negotiating a new Azure spending commitment in your EA, base it on proven usage (and use Azure’s cost management tools to find and eliminate waste ahead of time). In short, don’t over-commit on Azure either – keep it aligned with your actual needs.
Q8: Our EA doesn’t expire for a while – can we right-size before renewal?
A8: You can’t reduce your committed quantities until the renewal, but you can still take action now. Reassign and reuse underused licenses internally to avoid buying more, and optimize your cloud usage so you don’t exceed your current commit. Track these changes and savings. This way, you have evidence and momentum to justify reducing counts or commitments by the time renewal arrives. The contract adjustment happens at renewal, but the cost-saving behavior starts immediately.
Q9: Will cutting licenses reduce our volume discount from Microsoft?
A9: It could, since Microsoft’s standard discount tiers depend on volume. But even if you drop a tier, you’re probably saving more in absolute dollars by cutting the unused licenses. You can also negotiate – if you’re a valued customer or adding new products, Microsoft may be willing to maintain a better discount. The main point is to focus on net savings. A slightly lower discount on a much smaller license count can still yield a lower total cost than a higher discount on a bloated license count.
Q10: What’s a quick win to start right-sizing now?
A10: Start with the low-hanging fruit: find users who haven’t logged in for the last few months and remove or reassign their licenses immediately. You can also pilot a license downgrade (e.g., move a small team from E5 to E3) to verify that they can work fine. Every immediately reclaimed or downgraded license is instant savings, building momentum for larger optimizations.
Read about our Microsoft Negotiation Services.
