Microsoft EA Licensing Optimization: 7 Questions to Ask Before Renewing

Microsoft EA Licensing Optimization: 7 Questions to Ask Before Renewing

Renewing a Microsoft Enterprise Agreement is not just a procurement exercise—it’s a strategic opportunity to optimize licensing and reduce waste.

Before signing that next EA renewal, CIOs, CTOs, and ITAM teams should perform a self-assessment checklist.

This article presents seven critical questions every enterprise must ask to ensure it only pays for its needs, stays compliant, and gets the best value from Microsoft.

You can enter negotiations fully prepared and potentially save millions over the EA term by evaluating these areas- from usage baselines to contract alternatives.

Read about Microsoft EA Renewal Strategies.

1. Are we renewing with an accurate usage baseline?

Before anything else, gather a precise baseline of your current Microsoft license usage. This means knowing exactly how many licenses or subscriptions you have versus how many are in use.

Many companies use the quantity they originally purchased as the starting point for renewal, which often leads to overbuying. Usage changes over time – some licenses may be unused or underutilized, while you may inadvertently share or overuse them beyond entitlements in other areas.

Conduct a thorough internal audit to inventory all user accounts, devices, and deployments associated with your EA. Reconcile this against what you’re entitled to. The goal is to identify gaps (under-licensing, a compliance risk) and surpluses (over-licensing, which results in wasted spend).

You can confidently decide how many licenses to renew with a clean, accurate baseline. For instance, if you discover 500 Visio licenses allocated but only 200 active users, you know you can cut at least 300 in the renewal.

On the other hand, if you have deployed 110% of your purchased SQL Server cores, you’ll need to address this (either by trueing up before renewal or negotiating it into the new agreement).

An accurate baseline ensures you’re negotiating from facts, not assumptions, potentially saving significant costs by right-sizing your agreement.

Read Enterprise Agreement Renewal Negotiation: Proven Tactics That Work.

2. Do all our users need the same license level?

Microsoft’s catalog contains editions and plans—E5 vs. E3 vs. F3, Power BI Pro vs. Free, etc. A one-size-fits-all licensing approach is almost always suboptimal. Analyze your user profiles and usage personas.

Not every employee likely needs a top-tier license. For example, you might have a subset of power users who truly need Microsoft 365 E5 (with advanced security, telephony, analytics). Still, many users might be fine with E3 or even an F3 (Frontline) license if they only use email and Teams.

Similarly, some users might need the full Office suite, while others could use web-only versions or lighter licenses. ‘

By identifying distinct user groups (profiles) based on their software usage and work requirements, you can tailor your EA renewal to match the right license type to the right users.

This often yields huge savings; companies have seen 20-30% or more cost reduction by downgrading a chunk of users to more appropriate plans.

However, be prepared: Microsoft must approve mixed license profiles in an EA, especially if you introduce lower editions than before.

You’ll want to document and justify why a certain group can use Office 365 E1 instead of E3 (perhaps they are kiosk workers or only require email and web access).

It can be done, and it’s your right to optimize. Just plan to present this during negotiations.

In summary, license optimization through user segmentation is one of the most significant levers for eliminating unnecessary spending while providing everyone with the necessary tools.

3. Would we pass a Microsoft audit today?

It’s an uncomfortable but vital question: If Microsoft (or a third-party auditor) were to examine our deployments right now, would everything comply with our license entitlements? Software compliance goes hand in hand with optimization.

Before renewing, perform an internal true-up and compliance check across all Microsoft software.

This means verifying that you have a corresponding license for every installed product or activated user. Check areas like server software (Windows Server, SQL Server) and user-based services (Office 365 accounts, Dynamics, etc.).

If you discover any shortfalls – for instance, using more SQL Server cores than licensed, or extra users added to Exchange Online beyond your EA count – you have a few options to consider as part of renewal.

You could reconcile and purchase the deficit now (possibly via a true-up before renewal) or bring it up to negotiate a fix in the new agreement (maybe asking for transition pricing or forgiveness).

Why is this important? If you renew without addressing compliance gaps, you risk a surprise audit later with hefty penalties at non-negotiated (often full list) prices.

Plus, entering a negotiation while knowingly out of compliance puts you in a weak position—Microsoft could use it as pressure.

On the other hand, if you ensure you’re clean and compliant, you negotiate from a position of strength and avoid future audit drama.

Some enterprises even proactively engage a third-party license review before renewal to get an objective check. It’s better to find and fix compliance issues on your terms than on Microsoft’s audit timeline.

Read Microsoft EA Spend Justification and Renewal Pitfalls for Enterprise IT Leaders.

4. Do we need Software Assurance on all products?

Software Assurance (SA) is an add-on that provides upgrade rights and other benefits for Microsoft software. It constitutes a large portion of the spending in many enterprise agreements.

It’s common for organizations to renew SA out of habit, but you should ask: Is Software Assurance delivering value equal to its cost for each product?

Consider that SA typically costs roughly 25% of a license’s price per year (~75% of the perpetual license cost over a 3-year EA).

For certain products, especially server and desktop software, SA gives you rights to new versions, but if Microsoft isn’t releasing new versions you need, SA might not be justified.

For example, if you have Windows Server or Office on-premises licenses with SA but you’ve mostly moved to cloud services, perhaps you don’t need to keep paying for SA on those.

Or, if you suspect that the versions you have will serve you well for 3-5 more years, dropping SA (and thus not automatically receiving upgrades) could be a safe bet to cut costs.

Also, examine SA benefits, such as training vouchers, support incidents, or license mobility – are you utilizing those?

Many enterprises pay for SA and never fully utilize these perks. The potential savings from cutting SA where it’s not needed are significant – often tens of percent off your renewal bill. That said, make sure to do this analysis product by product.

You might keep SA for some software (e.g., SQL Server if you anticipate a new version or need failover rights), but drop it for others.

Suppose you choose to drop SA on a major component. Plan how to handle a new version release or other needs that SA covers.

Sometimes, you can purchase upgrades later if needed (at full cost) and still come out ahead financially compared to paying SA continuously. The bottom line is to challenge the assumption that you must renew SA for everything—it should earn its keep in value.

5. If we move more to Microsoft’s cloud services, are we protected if we change course?

In recent years, many organizations have embraced Office 365, Azure, and other cloud services in their EAs. However, it’s wise to consider a “what if”: If our cloud strategy changes or we need to bring workloads back on-premises, do our agreements provide protection?

This question is about avoiding lock-in and maintaining flexibility.

For example, say you moved fully to Office 365 online and didn’t renew your Windows/Office perpetual licenses. If you ever wanted to revert to on-premises Office for some users (due to cost or policy reasons), would you have the right to do so without purchasing brand-new licenses?

One way to protect yourself is through contract clauses or by pairing cloud subscriptions with some on-premises rights.

Microsoft sometimes offers “dual use” rights or grace periods—ensure you understand those. Another angle is data ownership and exit—if you rely heavily on Azure or Microsoft 365, do you have provisions for retrieving your data in a usable format if you leave the cloud service?

At renewal, it’s a good time to negotiate any terms related to data retrieval, transition assistance (see the next question), or flexibility to reduce cloud seats if needed.

Additionally, consider maintaining a minimal footprint of on-premises licenses (with SA) as an insurance policy. For instance, some companies maintain a few Exchange Server and CAL licenses on SA, even while using Exchange Online, so they retain the right to re-establish an on-premises email system if needed.

It might sound paranoid, but in highly regulated or cost-sensitive scenarios, having an exit plan from the cloud can help prevent you from being locked into a single approach.

In summary, ensure your EA or related agreements include safeguards, like the ability to revert to on-prem software versions, and clarity on how you’d transition away from a cloud service if it ever came to that.

6. What transition assistance can we negotiate if we switch or leave Microsoft solutions?

Along with planning for flexibility, consider the practical aspect: If you decide to migrate away from a Microsoft solution in the next few years, how hard and costly would that be?

Microsoft traditionally doesn’t make it easy to leave its ecosystem; it has no financial incentive to help you offboard to a competitor.

However, as a customer negotiating a renewal, you can attempt to build in some support. Ask questions like: Will Microsoft (or your reseller) provide services or funding to help transition data or systems if we discontinue a cloud service?

Can we reduce our license count without penalty mid-term if we migrate some users to a different software (say, a non-Microsoft CRM instead of Dynamics 365)?

While Microsoft might not readily volunteer these concessions, raising the topic flags that you demand flexibility.

In some cases, enterprises have negotiated arrangements such as a funded consulting engagement to migrate data back on-premises or an extended timeline to reduce licenses if moving a significant portion of the workload elsewhere (beyond the standard annual reduction rules).

At the very least, clear termination and data extraction clauses should be included for cloud services. For example, if you drop Azure, how long will Microsoft retain your data for retrieval, and in what formats?

Knowing this upfront is better than scrambling later. The message you send by asking is also valuable: it shows Microsoft that you are not assuming you’ll simply expand with them forever, regardless of the circumstances. You are keeping your options open, which can make them more inclined to keep you happy during the term.

7. Is renewing the EA our best option, or could another licensing model serve us better?

Enterprise Agreements are not the only game in town. Particularly in 2025, Microsoft has expanded its alternatives, including the Cloud Solution Provider (CSP) program, Microsoft Customer Agreements (MCA), and pay-as-you-go models.

It’s essential to evaluate whether renewing a large multi-year EA is suitable for your current situation. Ask: Has our organization’s size or IT strategy changed so that another model fits better?

For instance, if your employee count has dropped or you have become more cloud-only with variable needs, a CSP arrangement (which is typically month-to-month) might provide flexibility and potentially cost savings by allowing you to scale down at will, albeit at higher unit prices.

Conversely, if you’re growing or have stable needs, the EA’s volume discounts and price locks are valuable. Also, consider if Microsoft is pushing you towards a new contract type. We know Microsoft is nudging smaller enterprises off EAs starting in 2025.

If you fall in that category, you might not have a choice in a year or two, so weigh renewing one more EA term vs switching to an MCA-E now, with hopefully some incentives.

It may also be viable to do a mix: maybe keep an EA for core products but buy Azure via a separate agreement, or vice versa. The key is not to renew on autopilot – run the numbers for different scenarios.

What would be the cost if you purchased 12 months of licenses via CSP for 3 years versus the EA price? What about an evergreen direct Microsoft subscription (MCA)—does it remove some bureaucracy or allow more frequent adjustments?

By asking these questions, you might uncover that the EA still is best (which is fine – you’ll proceed knowing it’s right), or you might find a surprising benefit in another route.

And even if you stick with EA, telling Microsoft you’re evaluating alternatives strengthens your negotiating hand – they’ll fight a bit harder to keep you in the EA fold with a good offer.

Table: Key Self-Assessment Areas – Benefits vs. Risks

The table below summarizes each question area, highlighting the benefit of addressing it versus the risk if ignored.

Use this as a quick reference to ensure no stone is left unturned in your EA renewal preparation:

By systematically reviewing these areas, you can confidently enter your EA renewal knowing that your licensing is optimized and aligned with your organization’s needs and strategy.

This preparation often translates directly into cost savings and a smoother negotiation.

Recommendations

• Assemble a Cross-Functional Team: Involve IT, procurement, finance, and SAM (Software Asset Management) stakeholders in the pre-renewal assessment. A broad team ensures that all perspectives (usage, budget, compliance) are covered when answering these seven questions.
• Use SAM Tools for Data: Leverage inventory and usage tracking tools to gather precise data on software deployments and user activity. Accurate data is the foundation of every optimization decision.
• Engage Early with Microsoft/Reseller: If your analysis indicates that you plan to significantly reduce or change licenses, inform Microsoft or your reseller before formal renewal discussions. Early transparency can help negotiate acceptable terms (e.g., they might offer a concession to keep volumes or accommodate changes).
• Benchmark and Budget: Based on your optimized needs, benchmark pricing (get recent market quotes or use a licensing expert) to determine the ballpark cost. Update your budget expectations internally, for example, if you drop certain licenses, your renewal might be lower than last time (or help offset other increases).
• Document Rationale for Changes: When you decide to eliminate, downgrade, or not renew certain items, document the why (e.g., “Project X retired, 200 licenses freed up” or “Y product replaced by third-party solution”). This prepares you to justify changes to both Microsoft and your own executives.
• Plan for True-Up and True-Down: Remember that in an EA, you normally can only increase mid-term (true-up) but not decrease until renewal. So, take advantage of renewal time to right-size. Additionally, if possible, negotiate the ability to adjust downward during the term (it’s challenging, but some customers may achieve limited allowances or shorter agreement terms for flexibility).
• Consider a Renewal “Dry Run”: Some companies conduct an internal simulation 12 months prior, assuming that if renewal were today, what would we keep, cut, or change? This exercise often highlights gaps to address now (like deploying a SAM tool or training staff to use lower-cost alternatives), well before the pressure of the real renewal.
• Stay Informed on Microsoft Roadmap: An optimization mindset is ongoing. Keep tabs on Microsoft’s product and licensing changes through the EA period. If a new licensing option or product emerges that could benefit or impact you, you want to be prepared to incorporate that at the next true-up or renewal rather than reacting late.
• Educate and Communicate: Ensure leadership understands the importance of this renewal optimization. Share the findings of your 7-question assessment with the CIO/CFO so they can see the potential savings and risks mitigated – this helps secure support for tough decisions, such as removing certain licenses or declining some Microsoft offerings.
• Leverage Expert Advice if Needed: If your team is unsure about certain optimization areas (like complex SQL licensing or upcoming contract changes), consider consulting a third-party Microsoft licensing expert. A small investment in expert analysis can uncover hidden optimization opportunities or prevent costly mistakes.

FAQ

Q1: What’s the ideal timeline for evaluating these questions before an EA renewal?
Ideally, begin 12 months before your EA expiration to thoroughly work through the checklist. This gives ample time to gather data (which can take weeks if you’re consolidating usage information across the enterprise), identify optimizations, and implement any necessary changes (such as reallocating licenses or testing a lower-tier license for some users) ahead of renewal. At a minimum, start at least 6 months in advance, but a full year is recommended for large organizations.

Q2: How can we track our license usage accurately and avoid relying on guesswork?
Use a combination of tools and processes: Most enterprises use Software Asset Management (SAM) tools or IT discovery tools that can scan environments and report on installed software, active users, and usage frequency. Azure and M365 have admin portals that provide usage analytics (for example, you can view active Office 365 users and storage consumed). Additionally, maintain an internal process that ties new deployments or user provisioning to a license allocation. Regularly reconcile these data sources with your purchase records to ensure accuracy. If you lack tools, Microsoft provides some (like the Microsoft Assessment and Planning Toolkit for on-premises, or reports in the 365 Admin Center for cloud). In short, investing in SAM practices pays off by providing you with concrete data on which to base your renewal decisions.

Q3: How often does Microsoft audit enterprise customers?
Microsoft audits (or more often, initiates a formal license compliance verification) selectively. In recent years, they have somewhat de-emphasized surprise audits on their largest enterprise customers, focusing more on encouraging compliance via their partner ecosystem. However, that doesn’t mean audits have disappeared – they still occur, especially if there are red flags (like a customer downsizing licenses drastically, an anonymous tip, etc.). Also, the chances increase if you are in industries prone to audits (financial, government) or regions with strong Microsoft SAM engagement. A common pattern is an audit near the end of an EA term if you haven’t been true-upping properly. So it’s wise to always assume you could be audited. By cleaning up licensing before renewal, you essentially preempt this possibility. And if you are chosen for an audit, having done your homework means it’s far less painful.

Q4: Should we inform Microsoft or quietly address any non-compliance issues we identify during our internal review?
This is sensitive. Generally, fix what you can quietly before renewal. For example, suppose you find 100 extra installations of Visio. In that case, it’s often easiest to purchase them as part of the renewal (effectively true up) without fanfare, or uninstall them if they are not needed. Suppose the compliance gap is very large and costly. In that case, some companies disclose it during renewal negotiations to seek an amnesty or discounted resolution as part of the new deal. Microsoft might waive some penalties in exchange for your commitment to rectify the issue via the new EA. The approach depends on severity: fix small gaps proactively; consider involving Microsoft to negotiate a resolution for large, business-impacting gaps. Engage your legal or advisory team before disclosing anything. Remember, once you inform Microsoft, they can’t “unknow” it, so ensure it’s part of a broader negotiation strategy.

Q5: What are some examples of Software Assurance benefits we might be paying for but not using?
Commonly underused SA benefits include: Training Vouchers (Microsoft provides free training days that often expire unused), Planning Services (days of consulting for things like deployments now transitioned into FastTrack benefits, but many don’t utilize them fully), Tech Support (SA used to give several free support incidents – with Unified Support this changed, but some still have legacy support benefits), License Mobility (ability to bring licenses to the cloud – if you’re not leveraging it on AWS or similar, it’s a wasted benefit), and Upgrade rights (if no new version of a product came out, the upgrade right had no value during that term). Evaluate each benefit: Are we using it? If not, could we realistically use it going forward? If the answer is no, that weakens the case for renewing SA on that product. One notable area is Office/Windows perpetual licensing vs Microsoft 365. If you’ve shifted to subscription, SA on old perpetual licenses might be redundant.

Q6: We’ve moved most services to the Microsoft 365 cloud. Do we need to keep any on-prem licenses at all?
It depends on your risk tolerance and strategy. Technically, if you’re fully cloud and plan to stay that way, you might not need on-premises licenses (aside from a few for hybrid connectivity). However, consider scenarios: for example, if a network outage or cloud issue occurs, do you have any on-prem Exchange or file server capability as backup? Could you pivot if regulatory changes required data to be kept in-house for some workload? Some organizations maintain a “safety net” of on-prem licenses (with active SA to keep them current) for critical software as a contingency. It’s like an insurance policy; you hope not to use it, but it’s there. If you feel confident that you’ll never need on-premises again, you can save money by not renewing those and truly going all-in on cloud. Just weigh the costs vs the peace of mind and discuss with your IT continuity planners. A middle ground might be to retain minimal server licenses or a small pool of Office perpetual licenses for emergency use.

Q7: How can we decide between renewing an EA vs switching to CSP or other models?
The decision comes down to cost vs flexibility. Compare scenarios: Use your optimized license list from the earlier questions and price it under an EA (your negotiated estimate) versus CSP (monthly per-user costs, which your reseller can provide). CSP will likely have higher unit prices, but you may not have to commit to a 3-year term for every user. Also, consider whether you need the guaranteed pricing of an EA if budget stability is crucial; an EA wins because CSP prices could change year to year. If your user count or needs fluctuate significantly, CSP may help you avoid over-committing.

Q8: What happens if our company’s size drops significantly mid-term? Can we reduce our EA quantities?
In a traditional EA, you are generally locked in for the term to at least the quantities you initially signed for. You can always add more (true-up), but reducing (true-down) typically must wait until the next renewal. There are exceptions: if you divest a part of your company, Microsoft may allow a proportional reduction, provided you complete the necessary paperwork. However, absent special circumstances, downsizing won’t reduce your bill until the next renewal. This is why setting the quantities right is critical at renewal time. Suppose you foresee a potential decline (for example, automation may reduce headcount by 10%, or you plan to spin off a business unit). In that case, you might negotiate a shorter term (maybe a 2-year EA instead of 3, or an opt-out clause) or consider the CSP model for that portion to stay flexible. Always communicate expected changes to Microsoft – sometimes they can accommodate them creatively (such as structuring an agreement with staged reductions). Don’t assume you can just cut licenses mid-term without penalty – that could breach the contract. Plan conservatively: starting a little lower and true-up if needed is better than over-committing and wasting money on unused licenses.

Q9: How can we estimate potential savings from these optimizations to justify the effort?
You can do a rough calculation for each area:

• Baseline cleanup: If you find, for example, that 10% of your licenses are unused, that could result in a 10% cost savings if you don’t renew them.
• License re-tiering: Suppose 30% of users can go from E5 to E3, saving maybe $20 per user/month—that’s $20 * 12 * the number of users per year in savings. For 300 users, that’s $72,000 per year.
• Dropping SA: If a server license costs $1,000 and SA is $250 per year, dropping SA on 100 servers saves $ 25,000 per year—$ 75,000 over three years (minus any upgrade costs if you later need new versions).
  Add these up, and you might find you can shave 15-25% off your renewal compared to a status quo renewal. Also consider indirect savings: avoiding an audit fine, or not paying for a rushed true-up later at list price. These potential savings can easily reach hundreds or even millions in large environments. Presenting these numbers to management justifies why doing this homework is worthwhile.

Q10: Should we hire a third-party licensing expert or a SAM consultant to assist with our EA renewal assessment?
If you have the resources and the EA is a multi-million-dollar deal, engaging an expert can be a smart move. They can provide benchmark data (what discounts others are getting, where Microsoft is flexible), tools to analyze usage, and guidance on tricky areas (such as licensing rule nuances). They can also act as an intermediary in negotiations if needed. Many enterprises use specialized consultants or their resellers’ advisory services for a renewal of this magnitude. However, ensure any third party is truly independent (not just trying to sell you more licenses). The decision might come down to your internal team’s confidence and bandwidth – if you’ve handled many renewals and have a solid grasp, you might be able to handle it internally. But if Microsoft licensing isn’t a daily expertise area for your team, an external perspective can uncover optimizations you might miss or confirm that your plan is solid. It’s like having an auditor on your side to double-check things. The cost of consultancy often pays for itself in negotiated savings or avoided mistakes.

Read about our Microsoft Negotiation Services.

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