Managing True-Ups and True-Downs in Microsoft Enterprise Agreements (EA)

Managing True-Ups and True-Downs in Microsoft Enterprise Agreements (EA)

Enterprise IT leaders face an ongoing challenge in managing Microsoft licensing costs and compliance. True-ups and true-downs – adjusting license counts under a Microsoft Enterprise Agreement – can significantly impact budgets and vendor relationships.

This guide provides CIOs and sourcing executives with a structured approach to handle true-ups and true-downs effectively, ensuring cost optimization and contract compliance in alignment with industry best practices.

Things to Do

1. Track License Growth Continuously: Establish a software asset management (SAM) discipline to monitor yearly license usage. Keep a live inventory of all Microsoft products in use (on-premises and cloud) and note any new deployments or user additions as they occur. By maintaining real-time visibility into license consumption, you can anticipate true-up needs and avoid surprises at year-end. For example, if 50 new employees are onboarded or a new server cluster is deployed, these additions should be recorded immediately in your license tracker.

2. Document User and Device Counts Meticulously: Microsoft EAs often require covering all “Qualified” users or devices, so having an accurate count is critical. Maintain up-to-date records of active employees, machines, and relevant usage metrics (like CPU cores for SQL Server or enabled user subscriptions for Office 365). Documenting these counts on an ongoing basis makes the annual true-up reporting straightforward. It also provides an audit trail in case Microsoft questions any numbers. Ensure that departures (employee offboarding or device decommissions) are recorded, too – while you typically can’t reduce your license commitment mid-term for those reductions, tracking them will be useful for renewal planning.

3. Align Licensing with Headcount and Deployment Changes: Tie your true-up process to business changes such as organizational growth, mergers/acquisitions, or downsizing. If you expand into new regions or acquire a company, include their users and systems in your EA management plan from day one. Conversely, if you anticipate a hiring freeze or workforce reduction, project how that will affect license needs at the next renewal. Aligning license counts with actual personnel and deployment changes means your EA stays in sync with reality. This practice prevents under-licensing (compliance risk) and over-licensing (wasteful spending). It’s also wise to involve HR and business unit leaders so you get timely notice of upcoming changes (e.g., a new department spinning up with specialized software needs).

4. Manage Timing Proactively (No Last-Minute Scramble): Treat the true-up as a year-round process rather than a one-time fire drill. Conduct internal “mini true-ups” quarterly to reconcile your license entitlements against current usage. Regular checkpoints allow you to spot discrepancies early, for instance, detecting that a team deployed extra SQL Server instances without informing IT about licensing. Starting your official true-up preparation at least 1-2 months before the EA anniversary gives ample time to gather data, resolve anomalies, and obtain purchase management approvals. Proactive timing ensures accuracy and reduces the stress of rushing a complex true-up report days before the deadline. It also allows you to optimize. With advance notice of a needed purchase, you might negotiate a better deal or consider alternative licensing options before placing a true-up order.

5. Prepare for Renewal in Advance: True-ups aren’t just about true-ups – they set the stage for your EA renewal negotiations. In the final year of your Enterprise Agreement, use the true-up process as a fact-finding mission for renewal. Analyze which licenses were used versus sitting idle. Identify any significant drops in usage (e.g., a project ended, or you migrated workloads off Microsoft to another platform) that you would want to “true-down” at renewal. While mid-term reductions are generally not allowed, you can adjust your license quantities and product mix at the contract renewal. Gather data on current needs and forecasted changes for the next term. This preparation will empower you to enter renewal talks with a clear picture of what to keep, what to cut, and where to seek better pricing. For example, if only 800 of your 1,000 Office 365 licenses are actively used, you might plan to renew for 800 and save costs – but you’ll need usage evidence and a strategy to negotiate that change.

6. Leverage Independent Licensing Expertise: Given the complexity of Microsoft licensing rules, consider engaging an independent licensing advisor (such as a third-party consulting firm) to support your true-up process. These experts work on your behalf (not Microsoft’s) and can unbiasedly review your license posture. They might discover optimization opportunities – for instance, identifying unassigned licenses that can be reallocated internally instead of buying more or spotting mislicensed deployments before they become compliance problems. Independent specialists can also interpret the finer points of your contract (e.g., Product Terms or use rights that could affect true-ups) and help you communicate on a level playing field with Microsoft’s representatives. The goal is to ensure you are neither over-counting nor under-counting and fully aware of your options within the EA. Engaging such expertise is especially valuable as you approach renewal or if you lack in-house software licensing resources.

What to Think About

Even with solid processes, CIOs must understand the strategic and contractual context around true-ups. The following considerations are key to making informed decisions:

• Enterprise Agreement Commitments: When you sign an EA, you commit to a set of enterprise-wide products and a baseline number of licenses for the term. This minimum commitment often means covering all qualified users or devices with certain core products (like Windows, Office, or Microsoft 365 suites). You cannot reduce that baseline count during the EA term – even if your organization size falls – unless you have a special subscription agreement that explicitly allows annual reductions. In a classic EA with perpetual licenses, any licenses you initially purchased are yours for the three-year term (and beyond), so they remain on the books even if 10% of your staff leave. This is why up-front planning is crucial: significantly overestimating your needs can result in paying for “shelfware” (unused licenses) for years. On the flip side, EAs are designed to accommodate growth easily (you can always true-up for more licenses as you add people or deploy new systems). Ensure your initial EA enrollment is sized based on realistic current needs to avoid an over-commitment you’re stuck with.
• Pricing Protections in the EA: One advantage of an Enterprise Agreement is price predictability. When negotiating the EA, Microsoft typically locks in unit pricing for the products in your agreement for its duration. Any true-up quantities you add will be charged at the agreed price (often documented in a “future pricing” or price protection table in your contract), shielding you from list price increases during the term. For example, suppose your EA price per Windows 10 Enterprise license is $100 at signing. In that case, you will pay roughly the same unit price for any additional licenses in year 2 or 3, even if Microsoft’s public pricing has increased. This protection allows easier budgeting for growth. However, note that payment timing for true-ups can affect budgets. While your initial EA licenses are paid annually, most licenses added via true-up require a lump sum payment covering the remaining term. (If you add 100 licenses with one year left on the EA, you pay for that year’s worth of those 100 licenses at once.) Be prepared for these one-time charges in your financial planning. Also, if you plan to reduce licenses at renewal, the price for those licenses after renewal might change since a new agreement will be at the current rates, so the price lock applies only during the current term.
• Audit and Compliance Exposure: Treat true-ups as an opportunity to remain compliant because Microsoft views them that way. Your EA contract gives Microsoft the right to audit your deployment counts, and the true-up process is essentially a self-audit you perform annually. If you accurately report all usage increases, you maintain compliance and reset your license entitlement to match usage yearly. If you don’t, you create a compliance gap, and Microsoft’s audit provisions can kick in. A common clause in Microsoft agreements stipulates that if an official audit finds you to be under-licensed (for example, using more licenses than you paid for) beyond a small allowance, you could be required to purchase the missing licenses at full list (retail) price and potentially cover audit costs as well. In other words, failing to true-up properly not only defers the cost, it multiplies it. Moreover, under-reporting usage is a breach of your contractual obligations. Microsoft can impose back payments and penalties for any shortfall, and in extreme cases (especially if non-compliance is willful), it may even threaten license suspension or legal action. CIOs should think of true-up diligence as cheap insurance: paying for the licenses you used under the EA’s negotiated discount structure is far better than being caught in an audit and charged at penalty rates later.
• Risks of Under-Reporting vs. Over-Estimating: There’s a balancing act between not reporting enough and overbuying licenses “just in case.” Under-reporting (intentionally or by mistake) carries the serious compliance risks described above, along with damaged trust in your Microsoft relationship. Over-estimating needs, on the other hand, leads to overspending: you might end up paying for licenses that sit unused because you over-counted or failed to reclaim licenses no longer in use. While an EA’s true-up mechanism only requires you to pay for additional licenses, some organizations overspend by pre-purchasing more licenses than needed or not optimizing what they have. Strategically, it’s usually better to err on the side of accurate, conservative counts and then true-up if needed rather than over-commit. Keep meticulous records and use data (e.g., actual login counts and software usage metrics) to justify your license quantities. That data-driven approach will defend against any Microsoft claims of shortfall and ensure you’re not buying far above your actual requirements.
• True-Down Scenarios and Renewal Strategies: “True-down” is the unofficial term for reducing license counts. Microsoft does not generally allow true-downs during an EA term for enterprise products. The main opportunity to reduce your licensing footprint is at renewal. Plan ahead for scenarios where a true-down makes sense: perhaps your company is shifting from Microsoft software to a SaaS alternative, or you underwent a downsizing that left you with excess licenses. In the renewal negotiation, you can choose not to renew certain licenses or to renew fewer quantities. Be mindful of any minimums – for instance, if your organization fell below the EA minimum user count (traditionally 500 seats, though Microsoft has some flexibility for renewals), you might be steered to a different licensing program at renewal. Additionally, for some cloud subscription services (like certain Azure or Dynamics 365 subscriptions that are not part of the “enterprise-wide” commitment), Microsoft’s Product Terms may allow reductions on the anniversary during the term. These are exceptions rather than the norm, often labeled “reduction eligible” in the contract documentation. If you have such subscriptions, you could lower those counts annually as business needs dictate. However, always check the product terms and ensure you follow the process on the anniversary date. In all cases, any license count reductions require proactive communication: you typically must notify your Microsoft reseller or account team before
  the renewal (or anniversary for subscriptions) that you intend to decrease quantities. This way, the changes can be reflected in the renewal order. The key takeaway is that reductions require planning. Identify well in advance which licenses you might drop, confirm if and when it’s contractually permissible to do so and execute those reductions as part of a broader negotiation that might include product changes or migrations. By thinking in these terms, you avoid simply renewing the status quo and paying for unnecessary licenses for another term.

Practical Impact

How do true-up practices (or lack thereof) translate into real business outcomes? Below, we contrast the consequences of mismanaging these processes versus taking a proactive, optimized approach:

In summary, mismanaging true-ups can lead to budget shocks, wasted spending, compliance nightmares, and strained vendor relations.

In contrast, a well-managed approach yields financial predictability, cost savings, audit peace of mind, and a stronger negotiating stance with Microsoft.

The practical difference is significant: organizations that treat license management as a strategic function avoid costly pitfalls and extract more value from their Microsoft investments.

Clear Recommendations

To optimize true-up and true-down processes, CIOs and sourcing leaders at large enterprises should take the following actions:

• Establish a Year-Round License Management Program: Don’t wait for Microsoft to remind you about true-ups. Set up an internal program with clear ownership (e.g., a SAM manager or IT asset management team) to track license deployments and entitlement continuously. Make license compliance reporting a routine part of IT operations, with quarterly checkpoints and management visibility. This institutionalizes the proactive practices needed for smooth true-ups.
• Forecast and Communicate Changes Proactively: Integrate software licensing considerations into your business planning. If you know about upcoming expansions, projects, or contractions, forecast the licensing impact and communicate it to your finance team and your Microsoft account team early. Early visibility allows for exploring options, such as using alternative licensing models or timing deployments to optimize costs. It also ensures funds are allocated for any growth. Internally, treat every significant change (like a new cloud workload or office opening) as a trigger to review licensing needs.
• Optimize Before You True-Up: Conduct a cleanup exercise before submitting any true-up order. Scrutinize your environment for inactive user accounts, decommissioned VMs, or unused installations. Reassign or de-provision those licenses so that your reported increase is genuinely necessary. Essentially, true-up on paper before you true-up in reality, by ensuring all counted usage is valid. This practice can dramatically lower your true-up costs. For instance, if 100 Office 365 licenses are assigned to ex-employees or idle test accounts, wiping those out means 100 fewer licenses to pay for at true-up. Do this cleanup well before the true-up deadline, and document the changes.
• Leverage Renewal as a Reset Opportunity: View the EA renewal as your chance to realign with current needs. Several months before the EA end date, conduct a thorough review of what software and services are required going forward. Decide which products to drop or replace and what quantity reductions make sense. Then, engage Microsoft (or your reseller) with that data-driven plan. By signaling early what your post-renewal footprint might be (for example, “We intend to renew 20% fewer Windows Server licenses because we moved workloads to Azure”), you set the stage for a focused negotiation. Microsoft may try to upsell or maintain the status quo, but armed with usage facts and alternative options, you can push for an agreement that fits your actual needs (and maybe secure better pricing). Always adhere to any notice requirements for reductions – some contracts ask you to notify 30-60 days before the end if you plan to reduce certain subscription counts.
• Engage Independent Experts (Avoid Vendor-Only Reliance): Bring a trusted independent licensing advisor to review your strategy periodically. Independent experts (e.g., specialized licensing consultancies like Redress Compliance, etc.) provide advice solely in your interest. They can audit your license position without vendor bias, ensure you correctly interpret Microsoft’s complex rules, and suggest creative ways to minimize costs. For example, an expert might recommend switching certain applications from an EA to a cloud subscription outside the EA if that saves money and is contractually allowed. While Microsoft’s own representatives and resellers will offer guidance, remember their incentives align with selling more. Balancing that with independent insight helps you make fully informed decisions. Many enterprises engage such experts, especially during renewal prep or if facing a tricky true-up scenario (like licensing new technologies or negotiating a concession). The objective is to negotiate and manage from a position of knowledge, not simply accept the vendor’s framing.

Final Thought – True-ups and true-downs should be viewed not as tedious contract obligations but as strategic tools for license optimization. By following the above recommendations, CIOs can turn the annual true-up exercise into a well-oiled routine that protects the IT budget and ensures compliance.

Equally, organizations can avoid carrying unnecessary licensing baggage into the next contract cycle by planning for potential true-downs at renewal.

Success in managing a Microsoft Enterprise Agreement comes from proactive ownership of the process: tracking usage diligently, anticipating change, and negotiating assertively – all to align your license spend to your actual business needs.

With rigorous practices and independent expertise, you can confidently navigate true-ups and true-downs and keep your Microsoft licensing under firm control.