How to Stop Overpaying for Microsoft 365 Licenses

Microsoft 365 licensing is one of those costs that's easy to set up and easy to forget. You start with a certain number of seats, the team grows, you add more, someone leaves and the license just sits there. A year later, you're paying for 40 seats when 28 people are actively using the platform.

For most small businesses, a licensing audit is the fastest path to a meaningful cost reduction — often in the range of 20–35% of your current M365 spend.

Here's how to approach it.

Step 1: Pull Your Current License Inventory

Start in the Microsoft 365 Admin Center under Billing > Licenses. This shows you every subscription you're paying for and how many licenses are assigned vs. available.

Don't be surprised if you find multiple subscription types — a mix of Business Basic, Business Premium, and maybe some legacy E3 licenses from a migration or acquisition. That's common, and it's often where the most waste hides.

Step 2: Identify Unassigned Licenses

Any license that's been purchased but not assigned to a user is pure waste. These often accumulate when employees leave and their accounts are deleted without also releasing the license, or when a batch of licenses was purchased in anticipation of hiring that never happened.

Unassigned licenses can be removed from your subscription at the next renewal date. In some cases, you can reduce them immediately depending on your agreement type.

Step 3: Audit Inactive Assigned Licenses

This is where it gets more interesting. A license can be assigned to an active user account while the actual person hasn't logged in for months — or ever.

In the Admin Center under Users > Active Users, you can see the last sign-in date for each user. Filter for users who haven't signed in for 90+ days. Some of these will be legitimate (someone on extended leave, a seasonal employee), but many will be accounts that should have been cleaned up and weren't.

For each inactive account, determine whether to: disable the account and reclaim the license, convert it to a shared mailbox (which requires no license in most cases), or document the reason it should remain active.

Step 4: Right-Size Your License Tier

Not every user in your organization needs the same Microsoft 365 plan. A common mistake is to put everyone on Business Premium ($22/user/month as of 2026) when only a subset of users actually needs the advanced security and compliance features that justify that cost.

Typical breakdown for small teams:

• Business Basic ($6/user/month): Web-only Office apps, Exchange, Teams, SharePoint. Good for light users — administrative staff, part-time employees, or anyone who doesn't need the full desktop Office suite.
• Business Standard ($12.50/user/month): Full desktop Office apps plus everything in Basic. The right fit for most knowledge workers.
• Business Premium ($22/user/month): Adds advanced security (Intune, Defender for Business, Azure AD P1). Worth it for anyone handling sensitive data or for your IT admin accounts.

If you're putting everyone on Premium because it's "the best plan," you're likely overpaying for most of your users.

Step 5: Review Add-On Subscriptions

Beyond the core per-user plans, check for add-ons that may have been added at some point and forgotten:

• Audio Conferencing: Only needed if users regularly dial into Teams meetings from a phone.
• Power BI Pro: Required for sharing Power BI dashboards. If only one or two people are building reports, check whether the free tier covers your actual use case.
• Microsoft 365 Copilot: At $30/user/month, make sure every assigned seat is being actively used.
• Advanced Compliance / Information Protection add-ons: Valuable for regulated industries but often unnecessary for small businesses not subject to HIPAA or similar requirements.

What to Do With the Savings

The goal isn't just to cut costs — it's to make sure your spending matches your actual usage and needs. Some teams find that after a license audit, they're able to reinvest the savings into tools or services that actually move the needle: automation development, security improvements, or the kind of structured IT support that prevents the license sprawl from happening again.

Want Help With the Audit?

License audits are part of every Abyss Tech M365 engagement. If you'd rather have someone else do the legwork — pulling the data, identifying the waste, and handling the subscription changes — that's exactly what we're here for.

Book a 15-minute call and we'll give you a straight answer on what a license audit would involve for your team size and configuration.