Microsoft 365 optimisation: Where businesses overspend on licensing

On the 16 July 2026, Microsoft increased the price businesses pay for the Microsoft 365 suite. When your contract next renews, you will pay the new, higher prices.

Despite this, with an expert approach to licensing, many businesses can minimise or even reduce costs. Licensing is one of the most controllable costs on your balance sheet.

In this article, we explain the levers you can pull to reduce your licensing costs without losing any capabilities you need to achieve your business goals.

Table of contents

1. Microsoft 365 licensing best practice: what to check first

2. Check to see if an annual licence could save you money

3. Stop buying Microsoft 365 add-ons you already have

4. Get ahead of the next price change

5. Nonprofit? You likely qualify for more

6. Check your licence hygiene

7. Next steps to take

Microsoft 365 licensing best practice: what to check first

Firms often buy full Microsoft 365 licences for employees who do not use most Microsoft Office programs. This makes licensing simple. But that simplicity inflates costs for no good reason.
In our work with companies, we commonly see three scenarios in which this happens:

1. Firms buy full licences for frontline employees who do not need them

Microsoft 365 Frontline licences are specifically designed to help businesses reduce costs in this scenario.

They come with a reduced set of applications, tailored to frontline users’ needs. And they cost significantly less than full Microsoft 365 licences.

2. Businesses pay for more security than some users need

Another common reason for inflated Microsoft 365 licensing costs is that companies buy more security than some users need.

Finance or legal may need the advanced security, eDiscovery and risk-management of Microsoft 365 E5. For others, the less-expensive E3 licence provides the features they need at a lower cost.

3. Companies buy add-ons they already have

Companies sometimes buy a Microsoft 365 Business Standard and then pay for extras such as security features like Defender for Business or Microsoft Entra ID P1.

By doing this, they end up spending more than they would have done if they’d simply purchased Microsoft 365 Business Premium, which comes with all these extra features by default.

In each case, the right approach is to audit employees, to find out what apps they actually use. This enables you to precisely match licensing to needs, without any waste.

Check to see if an annual licence could save you money

Another reason companies often pay more than they need to for Microsoft 365 is that they choose a monthly rather than an annual plan, when it’s not necessary for them to do so.

Businesses sign up for the monthly payment plan (with a monthly commitment) because they perceive it as convenient and low-risk. But it’s also substantially more expensive.

The difference between the monthly and annual commitment, billed annually, is 17% per user per month (see table below). For even a small team, that quickly adds up.

Buy through a CSP for better prices

In most cases, Microsoft Cloud Solution Providers (CSPs) offer products at the same price listed by Microsoft. However, they can lock this price in for a longer period.

For instance, the 36-month contract for Microsoft 365 Enterprise editions is only available through CSPs. Locking in the price for three years is a good way to protect yourself against future price increases and can yield considerable savings.

A CSP will also work with you every time you purchase or renew a licence to make sure what you buy exactly matches your needs and is purchased in the most cost-effective way.

Other ways working with a Microsoft CSP can help you avoid unnecessary cost and complexity are:

• One invoice: consolidate Microsoft licensing and related services into a single bill.

• One point of contact: licensing and support queries are handled by one provider.

• Right-size licence tiers: ensure you only pay for features users need.

• Remove unused seats: catch licences that are no longer being used.

• Manage renewals: avoid missed deadlines, unwanted or poorly timed renewals.

• Licence optimisation: adjust licensing as roles and headcount change.

Many CSPs offer discounts to their customers. Texaport customers can reduce their licensing costs even more by taking advantage of Texaport’s offer of 10% off Microsoft 365. The offer applies to licences bought under an annual commitment and applies to businesses buying at least eleven licences.

Stop buying Microsoft 365 add-ons you already have

Something else that often catches companies out (and costs them money) is buying a more basic licence than they really need, then unlocking extra features as expensive add-ons.

• If you want Microsoft Copilot, you can buy it as an add-on for £13.90 per user per month. Add that to the cost of a monthly Business Premium licence, and the total comes to £30.80.

  That’s more expensive than purchasing Microsoft 365 Business Premium with Copilot, which only costs £24.60 per user per month. The same calculation is true for other editions of Microsoft 365: it’s significantly cheaper to buy the versions with Copilot bundled in than to buy the base licence and then add Copilot as an extra.

• Mailbox storage is also something many firms pay for unnecessarily. In July 2026, Microsoft added an extra 50GB of email storage per mailbox for Microsoft 365 Business licences. If you have Microsoft 365 Business licences and you’re paying for extra mailbox storage, check: you may not need it anymore. Again, this is a quick, painless way to make significant savings.

• Security also catches many businesses. They buy security add-ons to avoid paying for the upgrade to Microsoft 365 Business Premium. Commonly, these add-ons are:

  • Microsoft Defender for Business: £2.30 per user/month standalone

  • Microsoft Intune Plan 1: £6.20 per user/month standalone

  • Microsoft Entra ID P1: £5.40 per user/month standalone

  • Combined: £13.90 per user/month in standalone products

Microsoft 365 Business Standard plus these add-ons would cost £24.70 per user per month. Business Premium costs only £16.90, and comes with these security features as standard.

Get ahead of the next price change

Microsoft’s usual practice is to apply price rises when you renew. For instance, if you bought 10 one-year licences for Microsoft 365 E5 in October 2025, you’d start paying the higher prices announced in July 2026 when your contract is renewed in October 2026.

Where headcount is relatively certain, it’s worth buying a longer-term contract (12 or 36 months). This locks in today’s prices for longer and delivers bankable savings.

Nonprofit? You likely qualify for more

If you work for an eligible UK non-profit, you can make considerable further savings. Microsoft offers some products and services completely free of charge and provides generous discounts on others.

The most significant Microsoft offerings for UK charities include:

• Microsoft 365 Business Basic is available for free to registered users for up to 300 users at eligible UK non-profits.

• Microsoft 365 Business Premium is available to eligible UK non-profits at £4.20 per user, per month: a 75% discount.

Check your licence hygiene

One of the quickest ways to unnecessarily inflate licensing costs is to take a “set and forget” approach. As headcounts, user needs and business goals change, you soon end up paying for features you don’t need or over-paying for things you do need.

The answer to this is ongoing licence hygiene. This includes:

• Auditing for inactive accounts, seats assigned to leavers or long-dormant accounts that can be closed entirely.

• Downgrading rather than cancelling accounts when usage drops, rather than losing the seat entirely and bearing the expense and burden of re-provisioning later.

• Reviewing seat count and tier mix a month or two ahead of the annual renewal date, so changes land before the commitment locks in, not after.

Reviewing your licence mix is worth doing on a schedule, not just before renewal, but if you only have time for one check a year, 30 to 90 days before your renewal date is when it does the most good.

This leaves plenty of time to find potential savings and inefficiencies. Leaving it to the last minute makes licence optimisation harder and almost guarantees excess expenditure.

Next steps to take

Licensing rarely stays optimised on its own. Teams grow, roles change, and add-ons pile up long after the reason for buying them has gone, and most businesses only catch it when the bill looks too high.

As a Microsoft Solutions Partner for Modern Work, Texaport's engineers work through exactly this kind of licensing mismatch regularly. If something in this guide sounds familiar, or you're not sure where your own licensing stands, our Microsoft 365 support team can help.

Get in touch and we're happy to talk it through.

Frequently asked questions

Are there Microsoft 365 deals in the UK?

Yes. Microsoft and its Cloud Solution Provider (CSP) partners periodically offer promotions on Microsoft 365 licences. For example, Texaport is currently offering 10% off Microsoft 365 licensing, while Microsoft also offers Business Standard and Business Premium bundled with Microsoft 365 Copilot at a lower price than buying the products separately. Offers and eligibility can change, so check the current terms before buying.

Is Microsoft 365 Copilot free?

No. Microsoft 365 Copilot is a paid product, available either as an add-on to an eligible Microsoft 365 subscription or bundled with certain Microsoft 365 plans. However, Microsoft 365 Copilot Chat is available at no additional cost for eligible Microsoft 365 users. See our Microsoft 365 Copilot licensing guide for a full breakdown of the options.

Is it much cheaper to buy Microsoft 365 annually or monthly?

Usually, annually. Microsoft charges more for the flexibility of a monthly commitment than for an annual commitment. For example, Microsoft 365 Business Standard costs £12.96 per user/month on a monthly commitment, compared with £10.80 per user/month on an annual commitment paid annually — a saving of £2.16 per user/month, or 16.7%.