In many of the Microsoft 365 tenants I’ve worked with, licence management runs in the background. It usually gets real attention only when costs jump or a renewal is close. Microsoft’s November 2024 announcement makes that habit more expensive. From 1 April 2025, annual-term subscriptions paid monthly will cost 5% more than the same subscriptions paid upfront for the year. This comes on top of the premium that true monthly-term subscriptions have carried for a long time. So it makes sense to look at your Microsoft 365 monthly billing setup now and tidy up your licences before renewal season arrives.

Annual subscriptions paid monthly will cost 5% more

If you buy Microsoft 365 annual-term subscriptions and pay for them monthly, whether through CSP or a direct purchase, you’ll pay 5% more from April 2025 than you would with annual upfront payment. The Microsoft documentation on payment frequency explains the model and what it means in detail. The change applies to every company, whatever the tenant size. Education and non-profit customers are the exception.

In my experience, a lot of organisations stay on monthly billing simply out of habit. It feels flexible, even when they don’t actually need that flexibility. Now it has a visible cost. If you move to annual payment before your renewal, you can still secure the lower rate for the next subscription period. The hard part is knowing which subscription uses which payment option, especially when you have a mix of E3, E5 and F3 plus an ever-growing collection of add-ons.

Unused licences and inactive users are where the money leaks

The typical case looks like this. Licences get bought and never assigned, or user accounts stay around long after the person has left. For a quick check on unused entitlements, go to Microsoft 365 admin center → Billing → Licenses.

Group-based licensing in Entra ID also tends to cause bloat. When people leave but remain in groups, their licences can stay assigned and keep being billed. Access reviews for guests and inactive users help with this, but only if you set them up and actually act on the results every time. Before I start writing scripts, I like to sketch where licences tend to get stuck. This is a common flow:

flowchart TD
    Purchase["Licence purchase"] --> Assignment["Assignment (direct or group)"]
    Assignment --> Accounts["User accounts"]
    Accounts --> Active["Active usage"]
    Accounts --> Dormant["Dormant/inactive"]
    Dormant --> Review["Regular review"]

Figure: Where Microsoft 365 licences get assigned, and often forgotten

One thing that often goes unnoticed is add-ons. Copilot or Teams Premium gets rolled out for a pilot, and then stays active (and billed) long after the pilot is over.

Group-based licensing helps and hurts in equal measure

Group-based licensing in Entra ID (docs) cuts both ways. I regularly come across tenants with outdated licence groups, or with E3, E5 and F3 assignments mixed with no clear logic behind them. If you haven’t clearly mapped roles and departments yet, this is a good moment to clean up and match your licence groups to the jobs people actually do.

These are the steps I usually recommend:

  • Review group memberships at least twice a year (automate this if you can)
  • Reclaim unassigned licences
  • Check add-ons such as Copilot and Teams Premium regularly for real usage
  • Decide whether your E3/E5/F3 mix makes sense for each role
  • Document who owns each licensing process

Pro tip: I often export licence assignment data from the admin center to Excel and compare it against HR data. Add-ons in particular stand out as anomalies when you do this.

The contract model determines how flexible your payments are

Your payment options and day-to-day admin work look different depending on whether your tenant runs under a Cloud Solution Provider (CSP) agreement, an Enterprise Agreement (EA) or a direct purchase from Microsoft online. With CSP, changing the payment cadence is usually simple. EA customers tend to pay annually by default anyway. Given the new pricing, review all your agreements and check whether the payment model still matches what you need. In some cases a renegotiation or a switch to annual upfront payment saves more than the flexibility you give up.

Also keep add-ons like Copilot or Teams Premium to the people who really need them. I’ve covered the details of Copilot licensing in my post on Copilot with commercial data protection vs Copilot for Microsoft 365.

Your licences deserve a spring cleaning now

For many organisations, the higher price for monthly-paid annual subscriptions should be a prompt to act. Regularly checking licence assignments, group structure and add-ons pays for itself, sometimes quite literally. Clear processes, documented roles and a deliberate choice of payment model will save you money, and over time they also keep your tenant tidier and easier to manage.