Working with Microsoft LSPs: Roles, Risks & Leverage
Microsoft Licensing Solution Providers (LSPs) play a critical role in enterprise agreements and cloud subscriptions. But as a CIO, CFO, or procurement leader, you need to understand the dynamics at play.
This guide explains what LSPs do, where their incentives lie, and how you can structure your approach to maximize value while avoiding common pitfalls. In short, you’ll learn to use LSPs to your advantage as part of your Microsoft licensing negotiation strategy.
What Is a Microsoft LSP and Why They Matter
A Microsoft Licensing Solution Provider (LSP) is a type of reseller partner authorized to handle large Microsoft licensing agreements.
If your organization signs an Enterprise Agreement (EA) with Microsoft, you must work through an LSP – they are essentially the intermediary managing the paperwork and logistics of your EA.
For a full overview of negotiations, read our Ultimate Guide to Microsoft Contract Negotiations.
In this role, the LSP (sometimes referred to as an EA reseller) drafts contracts, processes orders and renewals, and assists in administering true-ups (annual adjustments to license counts) and other compliance tasks.
They ensure you get the right licenses provisioned and keep track of your entitlements.
LSPs matter because they serve as the required gatekeepers for volume licensing. Microsoft uses LSPs to streamline contract management and billing.
Most LSPs are also Cloud Solution Provider (CSP) partners, which means they can directly sell you cloud subscriptions (like Microsoft 365 or Azure) on a monthly or annual basis.
(For clarity on LSP vs CSP: an LSP manages long-term agreements like EAs, while a CSP can provide cloud services more flexibly, often with the LSP acting as the CSP reseller as well.)
In summary, an LSP plays an operational role in your Microsoft relationship, making the transaction process easier and offering guidance on licensing rules.
However, it’s essential to note that an LSP is not an independent advisor – their primary relationship is with Microsoft, which influences their operations.
LSP Incentives – Who They Work For
While an LSP works with your organization day-to-day, their business incentives are closely aligned with Microsoft. Understanding who the LSP works for is key to managing them effectively.
LSPs are typically compensated by Microsoft through rebates, fees, or small margins on the licenses you purchase.
They also have sales targets and quotas set in partnership agreements with Microsoft. In plain terms, Microsoft is effectively paying the LSP based on the amount you spend and the products you purchase.
This creates a classic conflict of interest. The LSP’s incentive is to sell more Microsoft products and services – that’s how they earn their keep and maintain their status.
They are encouraged to promote specific products or licensing models that Microsoft prioritizes (for example, cloud subscriptions or multi-year commitments).
Their quota attainment and partner tier (and therefore future benefits from Microsoft) may depend on getting customers to adopt the latest offerings or to increase consumption of Azure and other services.
As a result, your LSP might recommend solutions that increase Microsoft revenue (and their commission) rather than the absolute best deal for your needs.
They generally won’t aggressively challenge Microsoft’s pricing or licensing terms, because Microsoft is their primary business partner.
It’s not that your LSP is unethical – it’s that their role is fundamentally as a reseller for Microsoft, not a neutral adviser. Always remember that an LSP ultimately works for Microsoft’s goals as much as, if not more than, they work for yours.
Learn about Power Platform Licensing Negotiation.
Where the Margin Lives in Microsoft Licensing
Knowing how and where LSPs make money (“where the margin lives”) will help you spot areas to negotiate and ensure you’re not overpaying:
- License Sales (EA Deals): For Enterprise Agreements, the direct margin an LSP gets on license sales is usually very thin – often just a few percentage points or a small rebate on the deal. Microsoft sets the base pricing and discounts for large EAs, leaving little room for the LSP to add markup in many cases. In fact, in highly competitive or large direct deals, the LSP may only receive a fixed fee or a small commission from Microsoft. This means EAs alone aren’t huge profit centers for most LSPs.
- Cloud Subscriptions (CSP): Under the Cloud Solution Provider model, LSPs (and other resellers) often buy at a discount and resell to you at a higher rate. This is one area where a significant margin can exist. For example, a partner might obtain Microsoft 365 or Azure at a discount of 5-15% below retail price and then charge you close to retail (or slightly below it), pocketing the difference. If you never ask, you might not realize your reseller is adding a markup. This is why some LSPs encourage customers to move from an EA to a CSP model – in certain cases, it can increase the partner’s profit margin (even if it’s not better for the customer).
- Services and Support: Many LSPs offer add-on services that carry healthier margins. This can include support bundles, consulting, or managed services. For instance, an LSP might sell you a premium support package, cloud migration assistance, training sessions, or licensing optimization services. The LSP’s own staff often provides these services, allowing them to price them with a considerable markup. As licensing margins have become thinner, it’s common for LSPs to charge for services that were previously free (such as detailed usage reports or basic license management assistance). Keep an eye on these offerings – sometimes they’re valuable, but other times they’re padding the deal with extra costs.
- True-ups and Over-Consumption: Another area of margin is the “true-up” process and overage charges. If, during your annual EA true-up, you report additional license usage (for example, if you hire more employees and need more Office 365 seats), the LSP processes that increase. Because true-ups are often less scrutinized than initial negotiations, the LSP may earn a bit more commission on those incremental sales. Similarly, if you over-consume Azure beyond your committed amount, the excess is billed (often at less-discounted rates), and the LSP may gain from that unplanned spend.
- Vendor Incentives: Microsoft periodically runs incentive programs that reward partners for achieving specific outcomes, such as bonuses for migrating customers to Azure or selling advanced security products. These are indirect “margins” that don’t appear on your invoice but influence LSP behavior. Your LSP may be promoting a specific licensing bundle because there’s a backend incentive from Microsoft for them.
To sum up, the LSP’s profit doesn’t primarily come from giving you rock-bottom pricing. It comes from strategically placed margins on select items and services.
As a customer, awareness of these areas enables you to negotiate more effectively – you can press for transparency or discounts where you know the LSP has some flexibility.
Read about Azure negotiations.
The Risks of Relying Too Heavily on Your LSP
LSPs provide valuable administrative support, but there are risks if you lean on them too much for strategy or assume they have your best financial interests at heart:
- Conflict of Interest: As discussed, the LSP’s advice may be biased in favor of Microsoft’s agenda. If you rely on them for negotiating strategy or cost optimization, you might end up overspending. An LSP might not volunteer options that reduce your licensing footprint or cost, especially if it affects their quota or commission. For example, they might not tell you about a cheaper licensing alternative if it’s not something they resell or if it lowers your volume.
- Limited Advocacy: When it comes to negotiating an EA renewal or a big cloud commitment, you might expect your LSP to fight for the best deal on your behalf. Be cautious – often, the LSP will facilitate negotiations with Microsoft, but they won’t truly compete against their source of revenue. They are unlikely to push Microsoft beyond the standard discount envelope or escalation path. In some cases, they may even urge you to accept Microsoft’s offer by saying “this is the best you’ll get,” when in reality, there might be room if you negotiate directly or hold firm. In short, don’t assume the LSP will secure the lowest possible price for you out of pure goodwill.
- Opaque Pricing and Data: If you depend solely on the LSP for information, you might not see the full picture. Some LSPs are not transparent about Microsoft’s pricing vs. their add-ons. They might provide quotes as lump sums without showing unit prices or the exact discounts Microsoft offered. This opacity makes it difficult to determine if you’re getting a good deal or if there’s a hidden partner margin. Likewise, your LSP might control the portals and reports for your license usage. If they only share high-level summaries, you could miss opportunities to optimize. Relying on their summaries without direct data access can leave you flying blind.
- Service Gaps: Enterprises often assume that the LSP will provide guidance and support at no additional cost as part of the relationship. This used to be the case in the past (LSPs would include a lot of hand-holding to keep customers happy). Now, with margins shrinking, many LSPs have reduced their provision of “free” help. Rely on them for advice on complex licensing scenarios or for proactive cost management. You may find that those capabilities are lacking or available only for an additional fee. In the worst case, you might not realize the LSP isn’t covering certain responsibilities until a problem arises (like a missed deadline or a non-compliance issue).
- Lock-In and Complacency: Over-reliance can also lead to complacency. If you never explore other resellers or advisors, you might stick with an underperforming LSP out of habit. LSPs are aware of this, and some may invest less in your success over time if they feel secure. Additionally, switching LSPs mid-stream (especially during an EA term) is difficult, so if you’ve trusted them exclusively and later find out they mishandled something, you may be stuck until you can change at renewal. Maintaining a healthy distance and scrutiny in the relationship ensures you retain leverage.
In summary, treat your LSP as a transactional partner, not your chief negotiator. Maintain control of strategy and visibility, so misaligned incentives don’t catch you off guard.
How to Structure Asks to Gain Leverage
Working with an LSP effectively means using their strengths while safeguarding your interests.
Here are concrete ways to structure your asks and interactions to maximize value:
- Invite Competition: Even though you’ll ultimately choose one LSP to fulfill your Microsoft agreement, you have the right to shop around. Solicit proposals from multiple LSPs when approaching a major renewal or purchase. A competitive bid process encourages each reseller to offer you better discounts, more services, or a reduction in their margin. For an Enterprise Agreement, Microsoft’s pricing might be the same across LSPs in theory, but you’ll find differences in the extra incentives. One LSP might offer free training days or an enhanced support package, while another might agree to a lower rate on a specific product. In cloud subscription (CSP) scenarios, you can compare price markups between providers. Let LSPs know they’re not the only game in town – it keeps them honest and eager to please.
- Demand Pricing Transparency: Communicate your expectation for full transparency in pricing and reporting. Ask your LSP to break out the costs in their quotes: what is the official Microsoft price or discount, and what (if anything) is being added as their fee or margin? They may not volunteer this, but it doesn’t hurt to ask. At the very least, insist on seeing the pricing at a per-license or per-service level with any additional fees itemized. Additionally, request access to Microsoft’s portals or reports for your licenses and cloud usage. For example, you might request read-only access to your Volume Licensing Service Center (VLSC) or Azure usage reports, allowing you to verify the numbers independently. When an LSP knows you’re keeping an eye on the details, they are more likely to play straight.
- Leverage Value-Added Services: Turn the tables on the LSP’s service offerings by using them as negotiation chips. If an LSP is eager to win or retain your business, you can request additional support at no extra cost. For instance, consider negotiating for free advisory hours, training credits, or dedicated support resources as part of your agreement with the LSP. You might say, “We’ll renew with you, but we want quarterly license optimization reviews included,” or “We expect you to provide on-site training for our IT staff on new Microsoft features as part of this deal.” These services have value and would cost you money if you didn’t use them. By bundling them in, you ensure you’re getting something tangible for the loyalty you’re showing that reseller. It also forces the LSP to earn its keep beyond just taking orders.
- Use Independent Benchmarks and Advisors: Arm yourself with knowledge, before finalizing any deal via an LSP, research typical discount levels and terms that organizations of your size and industry get from Microsoft. This may involve consulting an independent licensing advisor or consultant to obtain a second opinion on the offer presented by your LSP. When you know, for example, that “most companies are getting a 20% discount on product X this year,” you can challenge your LSP if your quote shows only 10%. You don’t necessarily have to reveal your sources – just confidently push back and ask for improvement. The LSP will realize you’re an informed customer. In some cases, consider hiring an independent licensing strategist (who does not earn money from Microsoft sales) to guide your negotiation. Their fee can often be offset by the savings they find, and it keeps the LSP more directly accountable for delivering a competitive deal.
- Set Terms and Expectations Up Front: Finally, structure the engagement with your LSP by clearly outlining your expectations. For example, put in writing that you require the LSP to provide quarterly reviews of your license consumption, or that you expect them to proactively notify you of any changes in Microsoft licensing programs that might benefit you. Define any service-level expectations around quote turnaround times or support response times. When an LSP knows you have defined standards, it behaves more like a managed relationship than a casual vendor sale. Also, don’t hesitate to include a clause that allows you to switch LSPs at renewal if certain performance metrics aren’t met. This reminds them that your business is earned, not guaranteed.
By structuring these asks and conditions, you transform your LSP from a potential source of risk into a useful tool. They can handle the heavy lifting of licensing transactions and provide added value, while you stay firmly in control of the overall strategy and costs.
FAQ – Managing Microsoft LSP Relationships Strategically
- Do LSPs negotiate on our behalf with Microsoft? LSPs will facilitate communication and quotes from Microsoft, and they can relay your requests for discounts or special terms. However, they typically act as a go-between rather than a true negotiator, fighting exclusively for your interests. It’s wise for your team to stay involved in major negotiations and not outsource all strategy to the LSP.
- How much margin do LSPs have? On most standard Microsoft licenses (especially in an EA), the LSP’s direct margin is small – often just a couple of percent or a flat fee from Microsoft. Big profits from the license portion are not common. The real margins for LSPs tend to come from other areas, such as services, support plans, or cloud subscription markups. That means there isn’t usually a huge “hidden discount” they can suddenly give on an EA, but there may be room in other aspects of the deal (e.g., they could cut a services fee or reduce a markup on Azure).
- Can we switch LSPs mid-agreement? During an active Enterprise Agreement, switching LSPs is generally not straightforward. You’re typically tied to the LSP that originally processed the EA until it comes up for renewal. (Microsoft assigns the agreement to that partner for its duration.) In exceptional cases of non-performance, you may escalate to Microsoft, but it’s rare to make changes mid-term. For cloud subscriptions via CSP, you have more flexibility – you could move your subscriptions to a different CSP partner if needed, though it requires coordination. The easiest time to switch LSPs is at the end of an EA term, where you can direct your renewal through a new provider. Plan if you’re considering a change.
- What should we demand from an LSP? You should demand both transparency and value-add. That includes clear pricing (no mysterious fees), regular detailed reports of your usage and licenses, and straightforward answers to your questions. Additionally, we offer demand service, including an attentive account manager, assistance with Microsoft processes (such as licensing questions or support ticket escalations), and any extras that can help smooth your IT operations (for example, support with software asset management or a fast turnaround on quotes and license keys). Essentially, the LSP should not only process orders but also actively assist you in managing your Microsoft investment. If an LSP is only ever “taking your purchase order” and nothing else, they are replaceable.
- Do we still need an independent advisor if we have an LSP? If your Microsoft spend is significant, it’s often worth having an independent licensing advisor or at least doing your research – even if you have a competent LSP. Remember, the LSP’s perspective is inherently tied to selling Microsoft’s solutions. An independent advisor works only for you and can provide impartial guidance on optimizing costs, negotiating effectively, and exploring alternatives that an LSP might not mention. Many enterprises utilize an independent expert during major renewals to verify LSP recommendations and negotiate the best possible deal. Think of the LSP as the machinery that executes the deal and handles logistics. In contrast, an independent advisor (or your informed internal team) sets the strategy to ensure you’re getting the best outcome.
By understanding the roles and motivations in play, you can confidently manage your Microsoft LSP relationship. Treat the LSP as a valuable operational partner, while maintaining strategic control in your hands.
This balanced approach allows you to benefit from the convenience and expertise of the LSP without surrendering leverage or overpaying in your Microsoft licensing agreements.
Read about our Microsoft Negotiation Services.
