Microsoft EA Pricing
Microsoft’s Enterprise Agreement (EA) is a volume licensing contract offering substantial discounts, but costs can escalate without careful management.
Key cost drivers include the number of users (volume tiers), the types of licenses and cloud services selected, and how you leverage Software Assurance and hybrid use benefits.
By understanding these factors and optimizing your licensing mix, enterprises can reduce EA costs while meeting their IT needs.
Volume Tiers and User Counts Affect Pricing
Microsoft EAs use tiered pricing levels (A, B, C, D) based on the number of users or devices. Higher volumes qualify for built-in discount tiers, meaning the more licenses you commit to, the lower the cost per license. For example, an organization with 5,000 users (Level B) pays less per user than one with 1,000 users (Level A).
Large enterprises in the top tier (15,000+ users) can see significant price reductions.
The programmatic volume discounts range roughly from 15% to 40% off retail pricing at the highest tiers. However, if your user count is just below a tier threshold, you might be paying higher unit costs – pushing to the next tier (if feasible) is one way to unlock better pricing.
The relative cost per user drops as you move to higher EA volume tiers. Larger organizations (Level D) enjoy a lower per-license cost than smaller ones (Level A).
License Editions and Product Choices Drive Costs
The specific mix of products and editions in your EA is a major cost determinant. Premium licenses (like Microsoft 365 E5) cost significantly more than standard ones (E3 or E1). For instance, Microsoft 365 E5 can be almost 50–60% higher in price per user than E3 due to the added security, analytics, and voice features.
Similarly, including add-on products like Power BI Pro, Project, or Visio for many users will raise overall costs. Enterprises often over-provision high-end licenses, giving E5 to users who don’t use its advanced features, which drives up costs unnecessarily.
To reduce these costs, match users to the appropriate license level (e.g., info-workers on E3, basic users on F3 frontline licenses) and remove or downgrade licenses that exceed the user’s needs.
Cloud Services and Add-Ons
Modern EAs often bundle not just on-premises software, but also cloud services like Office 365, Azure, and Dynamics 365. These cloud service add-ons can quickly increase your EA spend. For example, committing to an Azure consumption fund in the EA (paying upfront for Azure credits) adds to the agreement’s value.
Adding security add-ons, audio conferencing, or telephony plans for Teams will drive costs upward per user. While bundling services in an EA can yield negotiated discounts, it’s important to only include services you need or plan to use.
Unnecessary add-ons become “shelfware” – paid for but not used. To keep costs down, evaluate cloud services critically: consider removing optional components that duplicate existing tools or have low adoption in your organization.
You can also explore if bundled suites (like Microsoft 365, which includes Office, Windows, and EMS security) are cheaper than buying individual components à la carte.
Read about How to Prepare for Your Next Microsoft EA Renewal.
Software Assurance and Hybrid Use Benefits
Each license in an EA typically includes Software Assurance (SA), which adds about 25% of the license cost per year. SA provides benefits like version upgrades, training, support, and Hybrid Use Rights.
These hybrid benefits allow you to use on-premises licenses in the cloud. For example, with Windows Server or SQL Server licenses under SA, you can run equivalent instances in Azure at a reduced cost (you’re bringing your own license).
Leveraging the Azure Hybrid Benefit can sometimes cut cloud infrastructure costs by 30-50%. From a cost perspective, SA is a double-edged sword: it increases upfront costs but can generate savings if you fully utilize its perks.
To reduce waste, ensure you capitalize on SA features – use upgrade rights instead of buying new licenses, utilize training vouchers, and deploy your hybrid use rights so you’re not paying twice for cloud VMs or Office 365 licenses.
If SA benefits are not being used and you don’t need perpetual ownership, consider an Enterprise Subscription Agreement (EAS) where you pay lower upfront costs (subscription model) and SA is inherently included for the term.
True-Ups, Growth, and Usage Fluctuations
EA pricing is initially based on a fixed count of licenses, but most organizations grow (or sometimes shrink) over the 3-year term. Adding licenses mid-term via the annual true-up process will increase your costs.
True-ups are billed typically at the same unit price as the initial order (prorated for the remaining term), but if Microsoft’s list prices have risen, new additions could be more expensive in year 2 or 3. Significant unplanned growth can thus drive costs higher than expected.
Conversely, you overspend on unused capacity if you over-forecast and buy too many licenses. Unfortunately, under a traditional EA, you generally can’t reduce license counts until renewal (you own them perpetually). To control these costs, it’s crucial to accurately forecast needs and only license what you require.
If you anticipate adding users or products, try to negotiate price protections or add a small buffer of extra licenses upfront at locked-in prices (to avoid later price hikes).
If you expect potential downsizing, an Enterprise Subscription (which allows reducing licenses on the anniversary) or shorter-term cloud subscriptions might be more cost-effective.
In any case, track your usage closely and true-up only what is in use; this avoids surprise costs and ensures you’re not paying for hypothetical growth that didn’t occur.
Negotiation and Discount Opportunities
Microsoft’s list prices are just a starting point – enterprise customers can and should negotiate. The discount tier from volume is standard, but additional custom discounts can often be secured based on your strategic value, competing offers, or willingness to adopt new Microsoft products.
For example, large deals might get an extra percentage off, credit incentives, or extended payment terms. Pricing on certain products (like Azure or Microsoft 365) might be negotiable if you can demonstrate competitive alternatives or bundle more services into the deal. Use benchmarks from similar companies or past deals to understand where you have room to push.
Another area to explore is multi-year price locks or caps on increases; these can protect you from the kind of price hikes Microsoft has implemented (such as the 10% increase on Office 365 plans in 2022).
Remember that Microsoft reps are motivated to upsell and expand your spend, so come prepared with data on what you need. Negotiation is key to cost reduction: enterprises that do their homework (usage analysis, alternative options) and start discussions early often achieve 15-30% savings off initial quotes.
Don’t accept the first quote; if your business is important to Microsoft, everything from license quantities to support fees is on the table.
Recommendations
- Right-Size Your Licenses: Regularly review license usage and remove or reassign any underused shelfware. Don’t pay for E5-level licenses for users who only require basic functionality.
- Leverage Volume Discounts: Consolidate purchases under one EA to maximize your volume tier. If you’re near a tier threshold, strategically adjust counts to reach the next discount level for lower per-user pricing.
- Optimize Add-ons: Scrutinize each cloud service and add-on in your EA. Eliminate unnecessary add-ons and consider cheaper alternatives (or free built-in capabilities) to avoid excess costs.
- Use Hybrid Benefits: Take full advantage of Hybrid Use Rights by applying existing licenses to cloud deployments (Azure VMs, etc.). This can significantly reduce cloud service charges under your EA.
- Plan True-Ups Strategically: Forecast growth and incorporate expected needs in the initial order when possible to lock prices. Time your true-ups (annually) and true-down any unused licenses at renewal to prevent overspending.
- Negotiate Aggressively: Engage Microsoft or your reseller with clear cost reduction goals. Benchmark market pricing and push for additional discounts or incentives beyond the standard tiered discount, especially if you’re considering competitive solutions.
- Monitor and Audit Usage: Implement internal license management (SAM/ITAM) to continuously track usage. This ensures you only pay for what you use and allows you to present data to Microsoft to justify lower costs or the removal of redundant licenses.
- Consider Subscription Model: If flexibility is a priority (e.g., your user count may drop), evaluate an Enterprise Subscription Agreement. Subscription EAs can lower upfront costs and allow downsizing at anniversaries, potentially reducing waste.
- Multi-Year Cost Planning: Treat the EA as a 3-year investment. Anticipate Microsoft’s price increases or product changes and budget for them. Negotiate price caps for years 2 and 3, and align contract end dates to avoid mid-year price hikes.
- Seek Expert Input: Utilize licensing experts or consultants to uncover cost savings. They can identify obscure contract options or Microsoft promotions that reduce your spend (e.g., special transition discounts or funding programs).
FAQ
Q1: What’s the biggest mistake enterprises make in managing Microsoft EA costs?
A1: A common mistake is over-licensing – buying more licenses or higher-tier products than needed “just in case.” This results in paying for unused capabilities. Not fully utilizing Software Assurance benefits (like upgrades or training you’ve paid for) is another. To avoid this, perform regular internal audits and adjust your license counts and editions to match usage.
Q2: How much of a discount can we get with an Enterprise Agreement compared to retail pricing?
A2: It depends on your size and negotiation, but built-in volume discounts typically range from 15% at lower tiers up to 40% or more for the largest enterprises. In addition, savvy negotiation can sometimes secure extra discounts on top of the standard tiers. The biggest savings often come from bundling products (e.g., Microsoft 365 suites) and committing to spend volumes that push you into a higher discount bracket.
Q3: Is licensing Microsoft 365 through an EA or CSP (Cloud Solution Provider) cheaper?
A3: For large organizations (500+ users) with steady needs, an EA usually provides the best per-user pricing due to volume discounts and multi-year fixed pricing. A CSP program offers more flexibility (monthly billing, no minimums), but per-seat costs might be higher, and discounts are smaller for the same scale. If your user count fluctuates or you’re under the EA minimum, CSP could be more cost-effective despite the higher unit price because you only pay for what you use. Many enterprises use EA for core licensing and CSP for certain add-ons or smaller subsidiaries.
Q4: How do we reduce costs if we need the advanced features of E5 licenses?
A4: One strategy is to adopt a mix-and-match licensing approach. Not every user needs the full E5 suite. You can license a core group with E5 and give others E3 with selective add-ons (like security or phone system) where needed. Also, negotiate the E5 price aggressively—Microsoft often provides better discounts on E5 if it wants customers to adopt those premium features. Finally, periodically review whether all E5 features are being used; if not, downgrade some users to save costs.
Q5: What role do true-ups play in EA cost management?
A5: True-ups are the yearly process of adding any additional licenses you deployed beyond your initial EA count. They ensure Microsoft gets paid for growth in usage. From a cost perspective, uncontrolled true-ups can lead to budget surprises. It’s important to forecast and budget for potential true-ups. To manage this, try to deploy new licenses around the anniversary date (to maximize the value before you pay), and remove any unused licenses before renewal (since you can’t true-down during term in a traditional EA). Also, negotiate upfront how true-ups will be priced – ideally, honoring your initial discount percentage or price hold, so you’re not paying a higher rate later on.
Q6: Does Software Assurance pay off, given that it increases our costs?
A6: Software Assurance (SA) adds cost but provides critical value if utilized. SA grants rights to new versions – so you don’t have to buy upgrades – and includes support, training, and the ability to use licenses in the cloud (Hybrid Benefit). SA likely pays for itself if your company upgrades software, uses training credits, or runs hybrid cloud workloads. However, if you would otherwise skip versions for many years or never use the extras, a subscription model (which bundles these benefits) or even not having SA (accepting older versions) could save money. In an EA, SA is usually part of the deal, so the key is to take advantage of it rather than let those benefits go to waste.
Q7: How can we predict and control Microsoft’s price increases over our EA term?
A7: Microsoft occasionally announces price increases for certain products (for example, Office 365 went up about 10% in 2022). Under an EA, the pricing for the products you initially license is typically locked for the 3-year term, which offers protection against those hikes. However, any new products you add mid-term could come at the new prices. To manage this, include any product you know you’ll need in the initial order to lock in the current price. You can also negotiate caps on price increases for renewal. Staying informed on Microsoft’s roadmap and pricing announcements helps you anticipate changes. Ultimately, locking prices in an EA is one reason enterprises choose multi-year agreements – it shields you from most list price inflation during the term.
Q8: We have many seasonal or temporary workers. How do we avoid overpaying for their licenses in an EA?
A8: This is a challenge with a standard EA requiring a fixed license count. One approach is to use flexible licensing for fluctuation: consider an Enterprise Subscription Agreement, which allows you to reduce counts at each annual anniversary to adjust for seasonal workers leaving. Another option is to license the base need in the EA and use short-term licenses (via CSP or other programs) for peak times. Some organizations also negotiate special terms for seasonal true-up adjustments. The key is not to over-commit your EA baseline to the peak number of employees if that number isn’t constant year-round.
Q9: Can we drop certain software or licenses at renewal to cut costs?
A9: Yes. The EA renewal is your opportunity to trim down – you can reduce quantities or even remove products entirely in the next term. You should thoroughly review before renewal to identify unused licenses or solutions no longer needed. For example, if you had 500 Visio licenses but only 100 active users, you can renew only 100 and stop paying for the rest. Similarly, if a department stopped using a particular product (say, they moved to a third-party solution), you can eliminate that from the EA. Just be mindful of any contractually mandatory components (some EAs require a company-wide baseline of Windows/Office for all users). Generally, renewal time is when you align your licenses to actual needs and cut out the excess.
Q10: What’s one quick way to reduce EA costs that companies often overlook?
A10: One quick win is identifying and eliminating duplicate or overlapping services. Large companies sometimes pay for overlapping functionality – for instance, a firm paying extra for a third-party security product while their Microsoft 365 E5 includes similar capabilities. You can save money by standardizing on the tools included in your EA and dropping external or redundant subscriptions. Another often overlooked tactic is leveraging Microsoft funding programs or promotions: sometimes, Microsoft offers incentive funds or free months for adopting certain Azure services or new products. These can effectively reduce your net costs during the EA term.
Read about our Microsoft Negotiation Services.
