Microsoft 365 licensing is deceptively complex. What looks like a straightforward per-seat subscription quickly becomes a tangle of license tiers, add-ons, assigned vs. unassigned seats, and overlapping features - especially as organizations grow, acquire, or restructure.
The result? Most businesses are paying for more than they need, or paying for the wrong things entirely. And the security features they actually need are sitting unused in a license tier they already own.
Average M365 licensing waste in SMBs - a combination of unassigned seats, wrong license tiers, and security features that were never activated.
Where the Waste Comes From
Licensing waste doesn't happen because of carelessness - it happens because of growth. Employees leave, roles change, projects end. Each event is an opportunity for a license to become orphaned or misaligned. Here are the most common sources:
Unassigned or "Orphaned" Licenses
When an employee leaves, their Microsoft 365 license is often left assigned to their (now disabled) account, or removed from the account but not cancelled from the subscription. Over a year of normal attrition at a 100-person company, this can represent 8–15 unused seats.
License Tier Mismatch
Many organizations have a mix of Business Basic, Business Standard, Business Premium, and E3 licenses - often because different tiers were purchased at different times for different reasons. Without a deliberate assignment strategy, frontline workers end up on E3, and knowledge workers end up on Business Basic - exactly backwards from a cost-per-value standpoint.
Paying for Features Available in Your Existing Tier
This is the most painful form of waste: purchasing an add-on for a feature that's already included in your current license. Microsoft Defender for Business, for example, is included in Business Premium - yet we regularly see organizations paying separately for Defender add-ons they already have.
| Common Add-On Purchased | Already Included In | Monthly Waste (50 users) |
|---|---|---|
| Defender for Business | Business Premium | ~$150–$300 |
| Azure AD P1 (Entra ID P1) | Business Premium, E3 | ~$300 |
| Intune | Business Premium, E3 | ~$350 |
| Exchange Online Plan 2 | E3, E5 | ~$200 |
How to Audit Your Licensing
A licensing audit doesn't require third-party tools. The Microsoft 365 admin center gives you everything you need - if you know where to look.
Step 1: Pull Your License Inventory
In the Microsoft 365 admin center, go to Billing → Your products. You'll see every active subscription, its quantity, and how many seats are assigned. Note any subscriptions with more purchased than assigned - that gap is immediate, recoverable waste.
Step 2: Review Assigned vs. Active
A license being assigned doesn't mean it's being used. In Reports → Usage, you can see activity by product and by user. Users who haven't logged in or used a service in 90+ days are strong candidates for downgrade or removal.
Step 3: Map Users to Roles
Create a simple spreadsheet: user, current license, primary Microsoft 365 services they use (email only? Teams? SharePoint? Defender?). Then cross-reference against what each license tier actually includes. You'll usually find 10–20% of users on a higher tier than their usage justifies.
Step 4: Check for Overlapping Add-Ons
Review every add-on subscription in your billing. For each one, look up what it includes and verify it isn't already covered by your base license. Microsoft's M365 Maps tool is excellent for this.
Timing matters: Microsoft license changes generally take effect at the next billing cycle. Plan your audit 30–45 days before renewal to give yourself time to act on what you find.
Right-Sizing vs. Downgrading
The goal of a licensing audit isn't to cut costs by stripping users of needed tools - it's to align spend with actual use. In practice, this often means a combination of:
- Removing unused seats from active subscriptions
- Downgrading users whose roles don't require premium features
- Upgrading users who would benefit from security features in higher tiers
- Consolidating overlapping subscriptions
The last point is often counterintuitive: upgrading some users from Business Standard to Business Premium can actually save money overall, because Business Premium includes Intune, Defender for Business, and Entra ID P1 - features they may be paying for separately as add-ons.
A licensing assessment is a straightforward engagement with a clear return: most organizations save 15–25% of their annual M365 spend within one billing cycle. If you'd like us to run one for your tenant, it starts with a conversation.