Microsoft 365: Why Most Organisations Are Overpaying and How to Fix It

Microsoft 365 is the largest SaaS expenditure for most organisations — and analysis consistently shows it's also the most over-licensed. The combination of automatic annual renewals, bundled tiers, and seat-based pricing creates ideal conditions for licence waste to accumulate quietly.

The Most Common M365 Overspend Patterns

Inactive users are the biggest source of waste. Employees who leave on a company's direct Microsoft contract are often simply disabled in Entra ID without removing their licence assignment. At £10–15 per user per month, a hundred inactive licences represents £12,000–£18,000 in annual waste.

Over-specified tiers are equally common. Many organisations deploy Business Premium across their entire workforce when most employees only need Business Basic or Business Standard. The feature delta between tiers — advanced threat protection, Intune, Azure AD P2 — is valuable for IT and security teams, but often unnecessary for the wider workforce.

Right-Sizing Your M365 Estate

Start with a licence report from the Microsoft 365 Admin Centre: active users in the last 30 days versus total assigned licences. Export this to Liceo or a spreadsheet and identify the inactive cohort for immediate removal.

Next, run a tier utilisation review. Which features in your current plan are actually being used, and by whom? Microsoft provides this data under Reports → Usage in the Admin Centre. Use it to identify users who could move to a lower tier without any functionality impact.

Optimising M365 Add-On Licences

Beyond the core M365 tiers, many organisations have accumulated add-on licences that compound the overspend: Power BI Pro, Visio, Project, Teams Phone, and Microsoft Copilot are common examples. Each add-on has its own usage data available in the Admin Centre — pull last-login and feature-use reports for each add-on and compare against active user counts. Add-on licences assigned to users who never open the associated product are pure waste.

Microsoft Copilot warrants particular attention: at £25–30 per user per month, it is the highest per-seat add-on cost in the M365 ecosystem, and adoption rates after initial deployment are frequently lower than expected. Pull the Copilot usage report from the Microsoft 365 Admin Centre (under Reports → Microsoft 365 Copilot) 90 days after deployment and use the data to right-size the licence count before the first annual renewal.

Negotiating M365 Renewals

Microsoft 365 is sold primarily through resellers (Microsoft licensing partners, Cloud Solution Providers), and the commercial terms available through these partners vary significantly. If you haven't benchmarked your current reseller's pricing against alternatives recently, you may be paying above the competitive rate. At annual contract value above £30,000, it's worth getting at least one competitive quote from an alternative CSP before your renewal conversation.

Microsoft's own enterprise agreement and Microsoft Customer Agreement structures offer different flexibility for large organisations — including the ability to true-up seat counts quarterly rather than committing to a fixed number at contract signature. If your headcount is growing or volatile, a more flexible agreement structure can save more than a per-seat price negotiation on a fixed-seat contract.

Connecting M365 Data to Your SaaS Management Platform

Microsoft provides detailed usage data through the Microsoft Graph API, and SaaS management platforms that integrate with Entra ID can pull per-user M365 app usage data automatically. This surfaces insights that the Admin Centre alone doesn't make easy to act on: identifying which specific users haven't used Exchange, Teams, or SharePoint in 90 days, and correlating that with their current licence tier, creates a prioritised right-sizing list rather than a raw utilisation report that requires manual analysis.