Microsoft 365 E3 vs E5: Choosing the Right Plan for Your Enterprise

Microsoft 365 E3 vs E5: Choosing the Right Plan for Your Enterprise

Microsoft 365 E3 vs E5 is one of the most pivotal decisions for enterprise IT planners. These two plans dominate enterprise licensing because they bundle Microsoft’s core productivity suite with varying levels of security, compliance, and analytics features.

Choosing between E3 and E5 has far-reaching implications for cost, security posture, compliance readiness, and even your negotiating leverage with Microsoft. Make sure to read our overview of Microsoft 365 Licensing.

This guide provides a straightforward examination of both plans, debunks the “E5 as default” push, and offers practical advice on selecting the right plan (or combination of plans) for your organization.

Why E3 vs E5 Matters

Deciding between E3 and E5 matters because these plans are the de facto choices for large organizations. Microsoft has positioned E5 as the premier enterprise SKU, often marketing it as the go-to for any serious enterprise.

However, E5 comes at a significantly higher cost and includes many advanced features that not every organization needs. Meanwhile, E3 remains the most widely deployed enterprise plan because it delivers the essentials at a more manageable price point.

The tension between these two options influences enterprise IT strategy in several ways:

• Cost and Budget Impact: At list prices, E5 can cost roughly 50–70% more per user than E3. This jump can translate to millions of dollars in annual spend for large enterprises. CIOs and CFOs must justify that premium by real business needs; otherwise, it’s money wasted on unused bells and whistles.
• Security and Compliance Stakes: Microsoft 365 E5 bundles advanced security tools (such as threat protection and identity governance) and compliance capabilities (including advanced auditing and eDiscovery). Microsoft often implies that to be truly secure or compliant, you need E5. In reality, E3 includes solid baseline security that can be augmented with selective add-ons. Still, for highly regulated industries or risk-averse organizations, the enhanced protections in E5 can be a game-changer. It’s a strategic trade-off between “good enough” security vs. “best-in-class” security.
• Microsoft’s All-In Push: Microsoft sales teams aggressively promote all-inclusive E5 adoption because it increases their revenue and embeds customers more deeply into the ecosystem. They often pitch E5 as the “modern workplace, fully realized.” Being aware of this sales pressure is important — you don’t want to buy into E5 just because it’s the top-tier option. A skeptical, fact-driven approach will ensure you only pay for what you truly need.
• Negotiation Leverage: The very act of considering E3 vs E5 can be used as leverage when negotiating your Microsoft Enterprise Agreement or renewal. If Microsoft knows you’re evaluating whether to upgrade (or downgrade) between E3 and E5, you can use that in discussions to secure better pricing or concessions. The E3/E5 decision is not just a technical one, but a business negotiation chip.

In short, the E3 vs E5 choice is a strategic decision. It affects your IT capabilities, budget allocation, and relationship with Microsoft. Next, we’ll break down exactly what each plan includes (and omits) to inform that decision.

What You Get with Microsoft 365 E3

Microsoft 365 E3 is the workhorse license for enterprises. It bundles together the core tools and services that most users need for productivity and collaboration, plus baseline security and device management.

Priced at around $33–$34 per user per month (with an annual commitment), E3 offers a comprehensive feature set without the high-end extras.

Here’s what’s included in M365 E3:

• Core Office Apps & Services: Full desktop and mobile versions of Office applications (Word, Excel, PowerPoint, Outlook, OneNote, etc.) are included, with the right to install on multiple devices per user. E3 also provides business-class email and calendaring via Exchange Online (50 GB+ mailbox and archive), team collaboration through SharePoint Online and OneDrive for Business (1 TB cloud storage per user, expandable for larger orgs), and enterprise conferencing and chat with Microsoft Teams. (Note: As of 2024, new E3 subscriptions in certain markets come “Teams-free” due to licensing changes – meaning the core Office suite is still there, but Teams functionality may need a separate add-on. Existing customers are grandfathered with Teams included.) In practice, E3 provides every user with the familiar Microsoft 365 productivity experience, enabling them to create content, communicate, and collaborate seamlessly across the organization.
• Windows Enterprise OS: Uniquely, Microsoft 365 E3 also includes a license for Windows 10/11 Enterprise (E3) for each user. This allows upgrading devices to the Enterprise edition of Windows with advanced features (like BitLocker encryption, advanced security controls, and update management). In effect, E3 covers your desktop OS licensing for enterprise use, which would otherwise be a separate cost.
• Baseline Security & Identity: E3 comes with the Enterprise Mobility + Security E3 components. That means you get Microsoft Intune for mobile device and application management (MDM/MAM) and Azure AD Premium P1 (now called Entra ID P1) for identity and access management. P1 supports features such as single sign-on, basic Conditional Access policies, and multi-factor authentication – essential security features for any enterprise. E3 users also have Microsoft Defender for Endpoint Plan 1, which provides baseline endpoint protection (including anti-malware and device risk monitoring) on Windows devices, as well as Exchange Online Protection for email threat filtering. These tools cover fundamental security needs (device management, user authentication security, basic threat protection). However, they lack the advanced, proactive threat hunting and automation capabilities that come with E5’s suite.
• Compliance and Data Protection (Standard): With E3, organizations can enforce core compliance policies and ensure data protection. It includes Data Loss Prevention (DLP) to protect sensitive information in emails and files, basic eDiscovery and content search across Exchange, SharePoint, and Teams for legal or investigative purposes, and the ability to apply retention policies to emails and documents. E3 also provides Azure Information Protection Plan 1 – enabling you to classify and label documents/email manually for sensitivity. These features cover “table stakes” compliance for many businesses. However, E3 does not include advanced tools such as auto-classification of data, lengthy audit log retention, or advanced eDiscovery analytics – those are E5 features.
• Extensibility via Add-ons: Recognizing that not all organizations are ready to upgrade to E5, Microsoft makes it possible to enhance E3 with targeted add-ons. For example, you can purchase Microsoft 365 E5 Security or E5 Compliance add-on packs for E3 users. These provide specific chunks of E5 functionality (such as advanced threat protection or advanced compliance/Purview features) without requiring the entire user to be converted to E5. You can also add Power BI Pro, Teams Phone (cloud telephony), or other individual licenses à la carte as needed. This modularity is a significant reason E3 is popular – it covers the essentials and allows you to optionally layer extra capabilities for specific users or groups.

Why E3 is the most commonly deployed enterprise SKU: Simply put, E3 hits the sweet spot for price vs. capabilities. It delivers all the core productivity tools and sufficient security for most standard environments at a far lower cost than E5.

Many enterprises find that E3 covers 80–90% of their needs, and they prefer to avoid paying the hefty premium for E5 features that only a subset of power users will leverage. In terms of value, E3 provides robust functionality, encompassing Office apps and cloud services, device management, and basic cybersecurity – all in one package that IT can easily manage. It’s often the default starting point for enterprise licensing, with upgrades only where justified.

However, E3 does have notable omissions compared to E5: it doesn’t include features such as advanced threat analytics (no Defender for Endpoint P2 or Cloud App Security), sophisticated compliance tools (no Advanced eDiscovery, customer key encryption, etc.), Power BI Pro, or built-in Teams Phone System capabilities. For those who want to stay on E3, you can purchase some add-ons or consider upgrading to E5. Let’s examine what E5 offers in detail.

What You Get with Microsoft 365 E5

Microsoft 365 E5 is the top-tier, “everything included” plan designed for organizations that demand the full range of Microsoft’s enterprise capabilities.

It includes all the features of E3, plus a wealth of advanced features in security, compliance, voice, and analytics. It comes at a premium price (around $54–$57 per user per month on an annual plan), and Microsoft often touts E5 as providing the best value if you need its extras.

Here’s what M365 E5 adds on top of E3:

• Advanced Security Suite: E5’s biggest differentiator is its comprehensive security bundle. E5 includes the full Microsoft 365 Defender suite: Defender for Endpoint Plan 2 (endpoint detection & response with threat hunting and automated remediation), Defender for Office 365 Plan 2 (advanced phishing and malware protection for email & Office apps, including features like Safe Attachments and Safe Links), Defender for Cloud Apps (a Cloud Access Security Broker to monitor and secure SaaS usage), and Defender for Identity (which detects identity-based threats across on-prem AD and cloud). These tools work together to provide an XDR (Extended Detection and Response) capability across email, endpoints, identities, and cloud applications. In addition, E5 upgrades Azure AD to the Premium P2 tier, unlocking features like Azure AD Identity Protection (risk-based conditional access, leaked credential detection) and Privileged Identity Management (just-in-time admin access and oversight). In short, an E5 user has Microsoft’s most powerful defenses at their disposal, suitable for organizations that prioritize a Zero Trust security model and proactive threat mitigation.
• Advanced Compliance & Information Protection: E5 comes with Microsoft’s top-tier compliance and governance features (often branded under Microsoft Purview). This includes Advanced eDiscovery (with AI-driven data analysis, legal hold notifications, Teams conversation review, etc.), Advanced Audit (audit log retention for up to 1 year and higher-frequency logging, crucial for forensic investigations), and capabilities like Customer Lockbox (giving you control over Microsoft support’s access to your content). In information protection, E5 unlocks auto-classification and labeling of data (Azure Information Protection P2), allowing you to automatically detect sensitive info in documents/emails and apply encryption or retention labels. There are also features for Insider Risk Management and Communication Compliance to detect insider threats or policy violations in communications. These compliance extras are often vital for regulated industries (finance, healthcare, legal) where E3’s basic tools may not meet strict regulatory requirements. With E5, audit and compliance officers gain much deeper visibility and control over the organization’s data.
• Analytics and BI: A standout feature of E5 is that it bundles Power BI Pro for every user. Power BI Pro (which typically costs approximately $10/user/month as a standalone) enables users to create, share, and consume interactive business intelligence reports and dashboards. By having it included, an E5-licensed organization can broadly adopt data analytics and reporting without separate BI licenses for each user. Beyond Power BI, E5 also includes advanced analytics in the form of Viva Insights (Workplace Analytics) for organizational productivity analysis. While E3 provides personal Viva Insights to individual users (such as daily productivity tips), E5 unlocks organizational trend analysis—note that some advanced Viva features may require a separate add-on in newer licensing models. The key point is that E5 is geared towards data-driven enterprises: if you want to empower users with analytics tools and measure work patterns at scale, E5 provides those capabilities out of the box.
• Voice and Telephony Integration: Microsoft 365 E5 includes Teams Phone System capabilities and Audio Conferencing licenses as part of the plan. This means an E5 user can be enabled with a full cloud PBX via Microsoft Teams, gaining features such as call routing, auto-attendants, and call queues. They can also make/receive phone calls to the public telephone network (PSTN) once a calling plan or direct routing/SIP trunk is assigned. The plan also covers unlimited dial-in audio conferencing for Teams meetings (users can join via a phone number with no extra per-user cost, whereas E3 users would need to purchase an Audio Conferencing add-on). By bundling telephony, E5 allows an enterprise to replace traditional phone systems or separate teleconferencing services with Teams. Microsoft often values these voice features highly – they’re a major part of the “E5 premium.” If your organization is looking to consolidate all communication (chat, meetings, and telephony) onto Teams, E5 provides the necessary licensing in a single package. (As mentioned earlier, due to 2024 licensing changes, new customers may need the separate “Teams Enterprise” add-on even with E5, but in essence, E5 is built to include the phone system functionality.)
• Why Microsoft Pushes E5: Microsoft is keen on customers adopting E5 because it showcases the full power of the Microsoft 365 platform – and, candidly, it generates more revenue per seat. By having organizations standardize on E5, Microsoft can claim you’re using their best-in-class security, compliance, and analytics, all tightly integrated. From a technical standpoint, Microsoft also knows that E5 features can drive usage of other services (for example, the logs from all those Defender tools might lead you to use Azure Sentinel, or Power BI usage might drive Azure data storage – all benefiting Microsoft’s ecosystem). Microsoft’s sales reps often have quotas or incentives tied specifically to E5 upsells, which is why you might feel constant encouragement to “upgrade your licenses” during renewal talks. They’ll highlight the unified benefits, potential third-party cost savings, and enhanced capabilities to make the case that E5 is the “default” for serious enterprises. While many of those benefits are real, the critical thing is to assess if your organization will actually use those E5 features enough to justify the cost. Don’t be swayed by the hype alone – weigh it against your needs.

In summary, Microsoft 365 E5 is ideal for organizations that want an all-in-one, top-tier solution: maximum security, full compliance coverage, built-in BI, and integrated voice. It’s powerful and convenient, but you pay for that breadth.

For some enterprises, it’s absolutely worth it; for others, E3 with a few supplements can achieve the same outcomes at a lower cost.

To make that clearer, let’s directly compare E3 and E5 features.

Microsoft 365 E3 vs E5 Feature Comparison

For an at-a-glance view, the following table breaks down key feature differences between E3 and E5 across major categories:

Table: Microsoft 365 E3 vs E5 feature comparison across key areas. As shown, E3 and E5 are identical in the basic productivity stack; the differences lie in the security, compliance, analytics, and voice features.

E5 packs in everything Microsoft offers, whereas E3 sticks to the essentials. With the features clearly laid out, the next major factor is pricing and licensing economics.

Pricing Dynamics – E3 vs E5

Licensing costs are often the driving factor in the E3 vs E5 debate. Beyond just the sticker price, enterprises need to consider how pricing structures, add-ons, and contract terms affect the total cost.

Let’s break down the pricing dynamics:

• List Price Comparison: Microsoft 365 E3 has a list price around $36 per user/month (USD, when billed annually), whereas Microsoft 365 E5 is about $57 per user/month. In many regions, these translate to roughly $33.75 versus $54.75 for the “no Teams” base plans after the 2024 changes. This means E5 is ~60% more expensive per user than E3 at retail pricing. Over a year, that’s roughly $400 for E3 vs $650 for E5 per user, before any volume discounts. For a workforce of 1,000, choosing E5 over E3 could result in roughly a quarter of a million dollars extra per year. Such a cost differential demands a clear value justification – it’s not a trivial bump.
• Volume Discounts and Agreements: The above prices are the baseline. In an Enterprise Agreement (EA) or similar volume licensing deal, large customers can often negotiate discounts, especially on E5, which Microsoft is eager to sell. Microsoft Customer Agreements (MCA-E) and Cloud Solution Provider (CSP) programs each have different pricing models: EAs lock you into an annual user count (or three-year term) often with discounted rates, whereas CSP allows month-to-month flexibility but usually at or near list price (often with a ~20% premium for month-to-month versus annual commitment, per Microsoft’s New Commerce Experience). The key point is that if you commit to a large number of E5 licenses for multiple years, you should negotiate for significant discounts. Conversely, if you need flexibility, you might mix some licenses via CSP even if it costs a bit more, to avoid overpaying for unused seats (more on that in the negotiation section).
• Add-ons vs. Bundled Cost: One way to evaluate E5’s pricing is to consider what it would cost to replicate E5’s features by adding things to E3. For example, take an E3 user and add Power BI Pro ($10), the E5 Security bundle ($12), the E5 Compliance bundle ($12), and a Teams Phone add-on ($8). That sum (~$42 extra) would actually exceed the incremental cost of E5 in many cases. In other words, if you truly utilize all the major components of E5, buying E5 outright is cheaper than piecemeal additions to E3. However – and this is crucial – most users won’t need every component. You might only need one or two of those add-ons for certain groups. If, for instance, you only want advanced security but not Power BI or Phone, then the E3 + Security add-on is significantly cheaper than the E5. Thus, the “hidden cost” in E5 is paying for capabilities that some users won’t use. It’s like an all-you-can-eat buffet: great value if you sample everything, but expensive if you only want a salad.
• Risk of Overspending: Without a clear plan, going all-in on E5 can lead to overspending and even “shelfware” (paid-for features that sit unused). We commonly see companies that bought E5 for everyone, yet only a fraction of users actually leverage Power BI or need the advanced security tools. The result is effectively wasted budget. One financial pitfall is double-paying for overlapping solutions: e.g., if you buy E5 but continue using a third-party security product or a separate BI tool, you’re paying twice for similar capabilities. On the other hand, undershooting (sticking with E3 but then purchasing many separate add-ons later) can also be more costly in the long run. The sweet spot is to align licensing with actual usage and requirements. Right-sizing your Microsoft 365 license mix is the key to cost optimization.
• Price Increases and Changes: Microsoft has not been shy about adjusting pricing or packaging. In recent years, they instituted price hikes on Office/M365 plans and, in 2024, unbundled Teams from the base E3/E5 in some markets (with a separate ~$5 add-on) due to regulatory pressure. Enterprises should stay alert to such changes. If a known price increase is forthcoming, it may be wise to renew early or extend your agreement to lock in current prices. Likewise, keep an eye on Microsoft’s roadmap – if they add new features to E5 (like future AI capabilities) without extra cost, it could tilt the value proposition over time.

In summary, E3 is significantly cheaper and easier on the budget, whereas E5 requires a larger investment that must be justified by the value it brings. If you genuinely need what E5 offers, the cost can be rationalized by savings elsewhere (retiring other tools, reducing risk of breaches, etc.). If not, E5’s cost will show up as an unfavorable line item. Now, let’s translate these differences into concrete guidance on when each plan makes sense.

Strategic Considerations – When to Choose E3

Not every enterprise needs the full power of E5. In fact, Microsoft 365 E3 is often the prudent choice in scenarios where core productivity is the focus and budgets are constrained. Here are situations and strategic reasons to opt for E3 over E5:

• Core Needs Without the Extras: If your organization’s IT needs revolve around standard productivity (Office apps, email, file-sharing, basic collaboration) and baseline security, E3 covers you. For many companies, E3 delivers everything users require to do their jobs. Choose E3 when you’re not facing advanced security threats daily and you don’t have complex compliance mandates that demand the specialized tools of E5. In other words, if E3’s feature set already checks all your boxes, why pay more?
• Cost-Sensitive Environments: CIOs and CFOs under budget pressure will lean toward E3 because it’s far more cost-effective. If you need to equip a large workforce with Microsoft 365 and must keep cloud spend predictable, E3 allows you to maximize coverage at lower cost. Especially for organizations with tens of thousands of users, even a $20/month price difference scales dramatically. E3 lets you meet digital workplace needs while minimizing incremental spend – a big win for cost-conscious IT leadership. The ROI of E5 may simply not pencil out if the added features aren’t mission-critical.
• Use of Third-Party Solutions: Some enterprises already invested in third-party products that cover areas E5 would overlap. For example, you might use Okta for identity management, Zoom for conferencing, Splunk for security analytics, or Proofpoint for email security. If these are entrenched and working well, you don’t necessarily need to pay Microsoft for similar functionality. E3 allows you to take an à la carte approach: use Microsoft for what it does best (productivity) and supplement with other vendors where preferred. You avoid duplicating costs. Until you’re ready to consolidate those services onto Microsoft’s platform, E3 is the appropriate license.
• Selective Feature Upgrades: E3 is ideal when you plan to enable advanced features for only a subset of users. For instance, maybe only your security team needs the advanced threat protection of Defender P2, or only your data analysts need Power BI Pro. In that case, you can license 90% of users with E3, and either get add-on licenses or separate tools for the few who need more. This targeted approach prevents “license bloat” where everyone gets an expensive license that only a few truly utilize. E3 gives you a base, and you scale up functionality only in specific areas. It’s a smarter allocation of budget to match actual usage.
• Avoiding All-in Lock-In: Strategically, staying on E3 can preserve negotiating leverage and flexibility. If you’re not ready to commit your entire org to Microsoft’s ecosystem for security/compliance, E3 keeps your options open. You can renew shorter-term or mix licenses, and you’re not fundamentally dependent on proprietary E5 features for operations. Essentially, E3 can be part of a best-of-breed IT strategy where you mix vendors and avoid putting all eggs in one basket. For some companies, that diversification is preferable to an all-Microsoft stack.

To sum up, choose E3 when it meets your needs “well enough” and when cost control is a top priority. Many enterprises thrive on E3 by smartly augmenting it here and there. E3 shines in scenarios of moderate requirements and careful spending.

Strategic Considerations – When to Choose E5

On the other hand, there are strong cases where Microsoft 365 E5 is justified and even essential. The premium plan can unlock significant value under the right circumstances. Consider moving to E5 in scenarios like these:

• Security-Driven Organizations: If your enterprise deals with highly sensitive data or is frequently targeted by cyber threats (think finance, defense, healthcare, critical infrastructure), the advanced security in E5 is a compelling draw. E5’s tools can dramatically improve threat detection and response times, reduce breach risk, and meet strict regulatory security requirements. For example, a bank under FFIEC guidelines or a healthcare provider under HIPAA might determine that features like Cloud App Security, Insider Risk Management, or Customer Lockbox are must-haves. When protecting customer data or intellectual property is mission-critical, the cost of E5 can be justified as an investment in risk mitigation. In some cases, E5 might even reduce cybersecurity insurance premiums or help demonstrate compliance to auditors.
• Heavily Regulated Industries: Similar to security, if you’re in an industry with heavy compliance demands (legal, government, financial services, pharmaceuticals), E5’s advanced compliance capabilities could be necessary. E5 enables things like long-term retention of audit logs (useful for forensic investigations or regulators), advanced eDiscovery to sift through large amounts of content during litigation, and fine-grained controls to prevent data leakage. For organizations subject to regulations such as GDPR, SOX, SEC 17a-4, or government classified data rules, E5 provides tools to meet those obligations internally rather than relying on external systems. The cost of non-compliance (fines, legal exposure) can far outweigh the cost of the licensing. Here, E5 becomes a form of insurance and governance infrastructure.
• Vendor Consolidation Strategy: Many CIOs are looking to simplify their IT stack and consolidate vendors. If you have a strategic initiative to adopt Microsoft as a one-stop platform – replacing disparate systems with integrated Microsoft solutions – then E5 is your friend. For example, going E5 could let you eliminate separate contracts for your PBX provider (by using Teams Phone), your Power BI alternative, your email security gateway, and even some SIEM or CASB tools. The cumulative savings of retiring those third-party products and the efficiency of one platform can make E5 cost-effective. Organizations aiming to streamline operations and licensing under one umbrella often choose E5 for that reason. It also simplifies user management (one license covers many needs) and can improve user experience with tightly integrated tools.
• Need for Enterprise Analytics & Voice: Consider E5 when you have a business need to empower every user with analytics and modern communication tools. If your company is doubling down on data culture, rolling out Power BI Pro to everyone via E5 can drive that agenda without additional procurement friction. Likewise, if you plan to move your entire telephony system into Teams for a unified communications strategy, E5 provides the licensing groundwork to do it at scale. Essentially, if you know you’ll be buying those E5 components separately for a majority of users, it’s simpler and often cheaper to just standardize on E5. A good example is a multinational that decides to replace Webex/Zoom and a legacy PBX with Teams: by opting for E5, they cover phone system licensing and get all the other perks in the process.
• Future-Proofing and Microsoft Incentives: Some organizations take a forward-looking view. If you anticipate that your needs will evolve to require advanced features in a year or two, starting with E5 can save the hassle of mid-term upgrades and possibly lock in better pricing now. Microsoft also often dangles incentives if you adopt E5 – such as discounted pricing, free trials of upcoming products, or extra support. Enterprises with budget flexibility may choose E5 to “set it and forget it,” knowing they won’t have to say no to any new Microsoft 365 feature down the road. Additionally, when Microsoft introduces new capabilities (for example, new AI-driven features or integrations), they often appear first in E5. Being on E5 ensures you’re at the cutting edge of Microsoft’s offerings, which can be a competitive advantage if technology enablement is part of your strategy.

In essence, choose E5 when the value outweighs the cost – typically in high-security environments, when consolidating and maximizing the Microsoft ecosystem, or when you want to equip your enterprise with every tool to drive innovation and efficiency. E5 makes you a “full platform” customer for Microsoft, which can pay dividends if you leverage it fully.

Hybrid Licensing Model – The Middle Ground

It’s not an all-or-nothing choice between E3 and E5. Many enterprises find the optimal solution is a hybrid licensing model: use E3 for the majority of users and E5 (or E5 add-ons) for a select minority who truly need those advanced features.

Microsoft allows mixing and matching license types within the same tenant, which opens up a middle-ground strategy that offers the best of both worlds.

How might a hybrid model look in practice? Imagine a company with 5,000 employees: perhaps 4,500 are on E3, which provides them with all core tools, and 500 users are on E5 because they handle sensitive data, are part of the cybersecurity team, or are executives requiring enhanced security.

This way, you pay the premium only for the users who derive clear value from it. In fact, Microsoft’s own licensing guides encourage aligning license levels with user profiles (sometimes referred to as “persona-based licensing” or “role-based licensing”).

Key benefits of a hybrid E3/E5 approach:

• Cost Optimization: You’re not overspending on E5 for people who won’t use it. For example, your finance department or call center staff may be fine with E3, whereas your IT administrators and R&D scientists may need E5. By tailoring the assignment, you avoid blanket oversubscription. Many organizations have saved 20% or more on Microsoft 365 costs by auditing user needs and downgrading a chunk of E5s to E3s.
• Selective Capability Boost: Hybrid licensing can be combined with add-on packs for precision. Perhaps you keep everyone on E3, but buy 1,000 “E5 Security” add-on licenses and assign them to specific high-risk users. Those users then effectively have E5-level security, while others don’t. Or you might enable just 100 users with the “Teams Phone” add-on for telephony, rather than E5 for all. This granular control allows you to address specific business requirements without requiring a wholesale E5 migration. It’s the “have your cake and eat it” approach – you get advanced functionality where needed, and cost savings elsewhere.
• Ease of Management: Some worry that a mix of licenses is harder to manage. In reality, the Microsoft 365 admin center makes it straightforward to assign different licenses. You can even automate license assignments based on group membership. So, a hybrid model doesn’t significantly increase IT overhead. What it does require is good governance and periodic review: you should periodically re-evaluate who truly needs E5 versus E3, especially as roles change or new projects commence. However, that exercise in license hygiene is beneficial and often reveals opportunities for further optimization.
• Avoiding One-Size-Fits-All: The hybrid model embodies the principle that IT should tailor the tool to the user, rather than forcing the user into an expensive tool they won’t use. It acknowledges diversity in job functions. A common pattern is: E3 for standard knowledge workers, E5 for specialists. For example, one client might license their cybersecurity team, legal/compliance team, and senior leadership with E5 (for advanced threat protection, eDiscovery, and phone system for execs on the road), while everyone else stays on E3. Another organization might do E3 + add-ons for most, and no E5 at all. The combinations are flexible.

In adopting a hybrid approach, it’s wise to communicate internally that licensing is based on business need, not hierarchy or perks.

Tie license levels to concrete requirements (security roles, data access levels, etc.) to avoid any perception of haves vs have-nots. When done transparently, hybrid licensing is a win-win: it provides financial efficiency for the company and offers appropriate toolsets for each user group.

Procurement & Negotiation Advisory

Selecting the right plan is only half the battle – you also need to strike the best deal with Microsoft. Whether you go mostly E3, all E5, or a mix, there are negotiation tactics and procurement strategies to ensure you optimize your licensing spend.

Here are some straightforward tips for negotiating and procuring E3/E5 in an enterprise context:

• Leverage Selective E5 Adoption: Use your plan mix as a bargaining chip. If you plan to keep a large portion of users on E3, let Microsoft know that broad E5 adoption is not a given. Express interest in expanding E5 for certain groups or in the future, but make it contingent upon obtaining a favorable price. Microsoft, eager to increase E5 seats, may offer discounts on E5 or include incentives if it senses an opportunity to expand your usage. For example, you might say, “We’re considering upgrading 500 users to E5 for advanced security – what can you do for us on pricing?” This signals potential upsell for them and can unlock better discounts or concessions.
• Bundle vs. Unbundle – Demand What You Need: Don’t be afraid to push back on the all-or-nothing bundling. If you truly only need one piece of E5 functionality, ask Microsoft (or your licensing partner) about add-ons or alternative licensing rather than agreeing to full E5 for all. Microsoft has made almost every major component of E5 available separately (as add-ons like E5 Security, Compliance, Insider Risk, Audio Conferencing, etc.). In negotiations, you can compare the cost of E3 + those add-ons vs the full E5 and use that as leverage. If Microsoft knows you’re willing to go the à la carte route, they might sharpen their pencil on an E5 bundle price to avoid you cherry-picking. Essentially, make Microsoft justify the premium bundle – and if they can’t, be prepared to custom-build your solution. In some cases, you can even negotiate special bundles (for instance, if you need E5 Security and Power BI but not Phone, Microsoft might create a deal with just those included at a lower rate than full E5).
• Time Your Renewal Strategically: The timing of your contract renewal can impact your bargaining power. Microsoft has fiscal year targets and periodically announces price changes. If you’re aware of an upcoming price increase, you could renew early or extend your agreement to lock current pricing (Microsoft usually honors prices for the term of an EA). Conversely, if Microsoft is offering promotional discounts (say, a 15% off E5 deal in a quarter), try to align your purchase to take advantage. Additionally, Microsoft representatives are often more flexible near the end of their fiscal year (June 30) or at the end of quarters when they need to meet quotas. Aligning your negotiation around those times can result in extra incentives. The key is to stay informed about Microsoft’s pricing environment and plan – don’t simply renew on autopilot.
• Hybrid EA + CSP for Flexibility: Traditionally, Enterprise Agreements lock you into several licenses for a 3-year term (you can increase during the term, but not reduce until renewal). To introduce flexibility, consider a hybrid procurement approach: license a core committed volume via EA (to get the bulk discount) and then use CSP or shorter-term subscriptions for swing users or uncertain growth. For example, commit 90% of your expected user count on an annual/EA basis, and leave 10% as monthly CSP licenses that you can ramp up or down as needed. This way, you’re not caught over-licensed if your headcount drops or a project ends. During negotiations, you can also seek clauses that allow some true-down or at least conversion of E5 to E3 licenses if needed. Microsoft might not readily agree to reductions, but large customers have negotiated the ability to flex a certain percentage of licenses at renewal or mid-term. The message is: build flexibility into your contracts so you’re not stuck paying for idle licenses.
• Ask for Extras and Support: If you hit a wall on discount percentages (every vendor has a floor they can’t go below), shift the conversation to value-adds. Microsoft can provide resources such as deployment funding, advisory hours, or complimentary training when you adopt new E5 features. They might include several free add-on licenses (e.g., “We’ll throw in Audio Conferencing for all E3 users at no charge,” which they actually did broadly in recent years, or “We’ll give you 6 months of E5 trial for 100 users”). These concessions can improve your ROI without technically lowering the price. Additionally, ensure you negotiate beneficial terms, such as the ability to swap licenses (upgrade some E3 to E5 mid-term at a predefined cost), or lock-in price protections for additional licenses you might buy later. The goal is to craft an agreement that not only offers a competitive unit price but also possesses the agility and perks that maximize its usefulness over its duration.

Finally, always approach Microsoft licensing negotiations with a clear understanding of your needs and usage. Go in with data: know how many users genuinely require each feature, know what you’re currently paying for third-party equivalents, and know what your budget can tolerate.

If you can demonstrate that analysis, Microsoft’s team is more likely to treat your requests seriously and cut a tailored deal, rather than pushing a one-size-fits-all package.

Remember, you have leverage too – Microsoft wants your business and to keep you in their ecosystem (or expand your footprint). By being strategic and firm in negotiations, you can often secure a much more favorable outcome, whether you choose E3, E5, or a combination.

Insights into F3 licensing – Microsoft 365 F3 Licensing Strategy for Frontline Workers

FAQ – Microsoft 365 E3 vs E5

Q: What is the main difference between Microsoft 365 E3 and E5?
A: The primary difference is that Microsoft 365 E5 includes everything E3 offers plus a suite of advanced features in security, compliance, analytics, and voice communications. E3 provides you with the core Office 365 apps, Windows Enterprise, basic security features (MFA, device management, etc.), and standard compliance tools. E5 builds on that by adding features such as the full Microsoft Defender security suite (for advanced threat protection across endpoints, email, and cloud), advanced compliance and eDiscovery capabilities, Power BI Pro for data analytics, and Teams Phone System with audio conferencing for enterprise telephony. In short, E3 covers the essentials for productivity and baseline security, while E5 is designed for organizations that require Microsoft’s top-tier protections and additional features across the board.

Q: Can you mix E3 and E5 licenses in one tenant?
A: Yes, absolutely. Microsoft 365 is highly flexible, allowing you to assign different license types to users within the same tenant. Many enterprises adopt a mix of E3 and E5 to avoid overpaying for their services. For example, you might license your general staff with E3 and reserve E5 for users who handle sensitive data or require advanced features. This practice (sometimes called hybrid licensing or multi-SKU strategy) is fully supported. Please be mindful of managing assignments in the admin portal. Mixing E3 and E5 is often the best way to tailor capabilities to user needs while optimizing costs simultaneously.

Q: Is E5 required for advanced security?
A: Not strictly “required,” but E5 is Microsoft’s way of bundling all advanced security into one package. If you want Microsoft’s highest level of threat protection – such as endpoint detection & response, advanced email phishing protection, cloud app security, and more – these features are available in E5 (or as add-ons to E3). You can enhance E3 by purchasing the “E5 Security” add-on, which provides many of the same tools as full E5. Alternatively, some organizations use third-party security solutions in conjunction with E3. Therefore, you can achieve advanced security without a full E5 license, but it may require additional integration work or separate licenses. E5’s value lies in its integrated security stack. If cyber defense is a top priority and you want a seamless, Microsoft-native solution, moving up to E5 is often the simplest route. If you have specific security needs, you might add them on top of E3.

Q: Can Microsoft 365 E3 cover most enterprise needs?
A: Yes, in fact, E3 is sufficient for a large percentage of enterprises in terms of daily productivity and standard security. It covers all the fundamentals: professional email, document creation, team collaboration, device management, and baseline protection for users and data. For organizations with standard risk profiles and compliance requirements, E3’s capabilities are usually more than enough. Many enterprises have operated successfully on E3 for years, perhaps supplementing with one or two extra tools (either Microsoft add-ons or other vendors) to fill any gaps. The decision to stick with E3 should be based on evaluating which E5 features are “nice to have” versus truly “must have.” If none of the E5 extras are mission-critical, E3 will cover virtually all essential needs at a lower cost. It’s also worth noting that Microsoft continues to enhance E3’s included features over time (for example, by adding minor security improvements or slightly increasing storage, etc.), so E3 today is quite robust.

Q: What’s the best licensing strategy for cost savings with Microsoft 365?
A: The best strategy for cost savings is licensing optimization and negotiation. In practice, this means starting with E3 as the default for all users, then identifying specific users or groups that legitimately require E5 capabilities and upgrading only those. Avoid the trap of over-licensing “just in case.” Monitor usage analytics – if certain E5 features aren’t being used, consider dropping those licenses at renewal. Leverage Microsoft’s add-on SKUs (like E5 Security or Compliance) to plug gaps on E3 users rather than upgrading everyone. From a negotiation standpoint, always seek volume discounts for larger purchases and be willing to sign longer commitments in exchange for price locks or discounts. However, also build in flexibility to adjust down if needed. Regularly review your subscription with an eye for “shelfware” (unused licenses or features). In summary, a mixed E3/E5 approach, aligned to actual needs and coupled with savvy negotiation, yields the best cost efficiency. It lets you get maximum value out of Microsoft 365 without paying for unnecessary extras.

Read about our Microsoft Negotiation Services

Would you like to learn more about our Microsoft Services?

Please enable JavaScript in your browser to complete this form.

Name *

Email *

Company

Message *

Submit