Microsoft 365 Licensing Commitments: What IT and Procurement Leaders Need to Know Before Signing

Microsoft 365 is deeply embedded in the modern digital workplace. For most enterprises, it’s not a question of whether to use it, but how to license it in the most efficient, cost effective way. As with Azure consumption commitments, Microsoft 365 licensing agreements often include long-term financial and usage obligations that require careful planning. If you’re about to sign a new agreement, or renegotiate your current one, it’s critical to understand what’s actually on the table, what flexibility you do or don’t have, and how to avoid paying for unused or underutilised resources.

What Is a Microsoft 365 Licensing Commitment?

At its core, a Microsoft 365 licensing commitment means locking in a specific number of licenses over a set period (typically 1-3 years) through an Enterprise Agreement (EA), Microsoft Customer Agreement (MCA), or via the New Commerce Experience (NCE).In return for this commitment, Microsoft offers pricing discounts and other commercial incentives. But these agreements are not just estimates; they are binding commitments to pay for the agreed number of licenses, whether or not you use them.In some scenarios, you can increase license counts as needed (often mid-term), but reducing them is typically only allowed at specific intervals, such as at renewal or anniversary dates. That makes forecasting and usage tracking critical.

What Counts Toward Your Commitment?

Not every SKU or subscription model works the same way. Enterprise-level SKUs like Microsoft 365 E3 and E5 typically fall under your committed baseline, and Microsoft is increasingly pushing bundled solutions that include security, compliance, and productivity tools.The introduction of AI capabilities like Microsoft Copilot also adds complexity. These premium add-ons may not be part of your core commitment, but they can significantly inflate overall costs if added post-agreement.If your users aren't taking full advantage of the features in higher-tier plans, you might be paying a premium for capabilities that are never used.

Where Organisations Get Caught Out

Many organisations overestimate their needs or fail to account for actual adoption rates, particularly with higher-tier licenses. Others forget to true-down unused seats at renewal or miss the window for changes.

A few common traps include:

• Paying for unused E5 licenses where users only use email and basic collaboration tools.

• Failing to track de-provisioned users, leaving licenses active for departed staff.

• Purchasing AI features across the board without a clear use case or deployment plan.

• These mistakes can easily compound over a three-year term, leading to wasted spend and limited flexibility.

How to Stay in Control

To manage Microsoft 365 commitments effectively, IT and Procurement leaders should:

1. Audit current usage before every renewal (understand how licenses are assigned and which features are actually used).

2. Build a licensing roadmap based on business priorities (not just Microsoft’s sales agenda).

3. Leverage Microsoft’s strategic objectives (like AI adoption or E5 upsell targets) to negotiate favourable terms.

4. Use anniversary dates and opt-out clauses strategically to adjust commitments during the term. By aligning your licensing strategy with business needs (not just vendor incentives) you’ll retain flexibility, avoid overpayment, and strengthen your position in future negotiations.

Final Thoughts

Like Azure commitments, Microsoft 365 licensing agreements are increasingly complex, with significant financial and operational implications. What may look like a simple discount can quickly become a long-term cost trap if not structured with care.

IT and Procurement leaders must approach these deals with a clear understanding of entitlements, usage patterns, and future needs - ideally backed by data and a strategic roadmap.

Need help navigating Microsoft licensing? Wyn helps enterprise leaders negotiate smarter Microsoft agreements, grounded in business priorities (not sales targets).

Visit wynpro.io/contact to learn more.