Microsoft 365 cost optimisation

Microsoft 365 is a meaningful annual line item for any sizeable organisation. Cost optimisation done well — without breaking outcomes — typically yields 10–25% savings. The patterns are well-understood; the discipline is what's missing in many organisations.

Reclaim inactive licences

The single most impactful action: reclaim licences from inactive users.

A licence assigned to a user who hasn't signed in for 90 days is wasted spend. Use the Entra ID sign-in activity:

$cutoff = (Get-Date).AddDays(-90).ToString("o")
Get-MgUser -All -Property UserPrincipalName,SignInActivity,AccountEnabled |
  Where-Object { 
    $_.AccountEnabled -and 
    $_.SignInActivity.LastSignInDateTime -lt $cutoff 
  } |
  Select-Object UserPrincipalName, @{N="LastSignIn";E={$_.SignInActivity.LastSignInDateTime}}

Validate with HR before stripping licences — some users legitimately don't sign in (long leave, executive assistants with delegated mailboxes). For confirmed inactives, remove the licence.

Typical finding: 5–15% of licences are reclaimable in a tenant that hasn't done this exercise recently.

Right-size SKUs

Many organisations licence everyone at the same tier — typically E3 or E5 — when not everyone needs it. Common right-sizing patterns:

• Frontline workers — F1 or F3 instead of E3/E5. Massive savings; often missed.
• Knowledge workers — E3 sufficient for most; E5 only for those needing the advanced security / compliance / analytics.
• Specialised roles — Visio Plan 1/2, Project Plan 1/3/5, Power BI Pro — assign individually where the broader plan is overkill.
• Apps for Enterprise — for users who need Office desktop but not full Microsoft 365 cloud services.

A licensing inventory by role / department often reveals significant savings.

Step-up SKU pattern

Instead of buying everyone E5, license everyone at a baseline (Business Premium or E3) and add E5 step-up licences to specific users who need E5 features — the security team, compliance officers, executives with high-risk profiles.

The step-up licence costs less than the full E5 difference, and only the users who need it carry the additional cost.

Eliminate redundant SKUs

Tenants sometimes have redundant licences assigned — a user has both E3 and Apps for Enterprise (the Apps part of E3 makes the Apps SKU redundant). Service-plan-level analysis identifies overlaps.

PowerShell can audit:

Get-MgUser -All -Property AssignedLicenses |
  Where-Object { $_.AssignedLicenses.Count -gt 1 } |
  # Detailed analysis of which SKUs overlap

Audit Power Platform licences

The Power Platform licensing has changed multiple times; many tenants over-license. Common findings:

• Per-user Power Apps Premium for users who only use 1–2 apps — per-app licensing is cheaper.
• Power Automate Premium for users whose flows use only standard connectors — included with M365, no Premium needed.
• Pay-as-you-go more cost-effective than per-user for sporadic use.

The Power Platform CoE Toolkit surfaces who's actually using what.

Optimise Power BI

• Power BI Pro vs PPU vs Fabric capacity — depends on usage patterns; analyse who's authoring vs consuming.
• Premium capacity SKU sizing — many Premium capacities are oversized; check actual utilisation.

Communications licensing

For tenants with Teams Phone:

• Common Area Phone licences for reception / shared phones instead of full user licences.
• Calling Plan vs Operator Connect vs Direct Routing — total cost can vary significantly.
• Per-user calling minutes — many users have far more minutes allocated than they use.

Storage and add-ons

• Audit (Premium) — only needed if regulatory retention exceeds 1 year.
• Multi-Geo — only meaningful for multinationals with specific residency needs.
• Customer Lockbox / Customer Key — only if regulatory requirements drive them.
• Additional SharePoint storage — usually cheaper to delete stale content than to buy more storage.

Operational discipline

The cost-optimisation activities aren't a one-time project:

• Monthly: review newly inactive users; reclaim licences.
• Quarterly: SKU right-sizing analysis across departments.
• Annually: full optimisation review aligned with the EA / MCA renewal.
• At renewal: negotiate based on actual usage data; Microsoft is reasonable when the buyer is informed.

Pitfalls to avoid

• Reclaiming too aggressively — temporary inactivity (vacation, leave) shouldn't trigger removal.
• Downgrading to save money but losing required features — verify the feature isn't critical before removing the licence tier.
• Cost vs value tradeoff — sometimes the higher-tier licence is genuinely valuable; don't optimise the licence cost while costing more in lost outcomes.

For a 5,000-seat Microsoft 365 tenant, even modest optimisation typically saves hundreds of thousands per year. The work to find the savings is one of the higher-ROI activities IT can do.