Microsoft 365 Licence Right-Sizing: Eliminating Unused Seats Before True-Up

Microsoft 365 licence waste is one of the most common — and most avoidable — forms of enterprise software overspending. Unlike Oracle or SAP, where licence complexity creates uncertainty about your true position, Microsoft 365 usage data is readily available in the Microsoft Admin Centre. The problem is not access to data. The problem is that most enterprises don't act on it systematically before their EA renewal or annual true-up.

This guide walks through the right-sizing process for Microsoft 365 — from pulling the right data to building the business case for seat reduction, to using that reduction as leverage in your Microsoft EA negotiation.

The Microsoft 365 Procurement Problem

Microsoft 365 licences are typically purchased in large blocks at EA inception, based on headcount projections. Over time, organisations change: people leave, departments consolidate, hybrid working changes usage patterns, and acquisitions add complexity. The EA true-up mechanism requires you to report increases above your committed quantity — but it does not require or encourage you to report decreases. Microsoft's commercial model is asymmetric: it captures upside for Microsoft, and leaves downside on the table for the customer.

The result: most enterprise Microsoft 365 deployments contain a substantial tail of licences assigned to:

• Former employees whose accounts were not promptly deprovisioned
• Contractors, temps, and consultants who no longer work with the organisation
• Employees who have not logged into Microsoft 365 services in 60, 90, or 180+ days
• Shared mailboxes and room accounts assigned full user licences when shared licences would suffice
• Pilot or test accounts created for projects that have since been completed

The Data Sources You Need

Microsoft makes it relatively straightforward to identify unused and underused licences — if you know where to look.

Microsoft 365 Admin Centre — Usage Reports

Navigate to Reports > Usage in the Microsoft 365 Admin Centre. The key reports are: Microsoft 365 Apps usage (shows which users have launched any M365 app in the last 30/90/180 days), Exchange activity (shows active email users), Teams activity (shows active Teams users), and OneDrive activity. Export these to CSV and cross-reference against your full user list.

Azure Active Directory Sign-In Logs

Azure AD sign-in logs show the last authentication event for every user account. Accounts with no sign-in activity in the last 90 days are candidates for review. Accounts with no sign-in activity in the last 180 days should be considered for removal absent a specific business justification (long-term leave, etc.).

Licence Assignment Audit

Pull a full licence assignment report from Microsoft 365 Admin Centre (Users > Active Users > Export). This shows every assigned licence and which user holds it. Cross-reference against your HR system's active headcount to identify accounts that no longer correspond to active employees.

Microsoft Viva Insights or Productivity Score

If your organisation uses Viva Insights or the Microsoft 365 Productivity Score (available in M365 E3+), these provide aggregate utilisation data by product area — Teams, SharePoint, Yammer, etc. — that supplements the per-user usage reports.

The Right-Sizing Methodology

Step 1: Build Your User Activity Matrix

Combine your usage reports, Azure AD sign-in logs, and licence assignment data into a single spreadsheet. For each assigned licence, you want to know: last sign-in date, Microsoft 365 Apps last active date, Teams last active date, and Exchange last active date. Sort by last activity date to identify inactive accounts.

Step 2: Segment by User Category

Not all inactive accounts are the same. Segment your inactive users into categories: leavers (accounts that should have been deprovisioned), genuine inactives (employees who simply don't use Microsoft 365 tools), and special cases (parental leave, medical leave, long-term travel). Only the first two categories are candidates for licence removal. Special cases require individual review.

Step 3: Identify SKU Right-Sizing Opportunities

Beyond seat count reduction, evaluate whether users are on the right Microsoft 365 SKU. The most common finding: users assigned Microsoft 365 E5 (which includes advanced security, compliance, and voice features) who are not using the E5-specific capabilities. For these users, downgrading to E3 can represent a 30-45% per-seat cost reduction without any operational impact.

Step 4: Validate with Line-of-Business Stakeholders

Before removing any licences, validate your inactive-user list with HR and line-of-business managers. There will always be legitimate cases that are not captured in your activity data. The validation step also builds internal support for the right-sizing programme — departments that understand the cost basis tend to be more receptive to optimisation.

Step 5: Execute Deprovisioning Before the True-Up Window

Microsoft EA true-ups typically occur annually on the anniversary of your EA. Your licence count at the true-up date determines your cost for the following year. To capture the maximum saving, deprovisioning must be complete before that date — not after.

The NCE Complication: Annual vs Monthly Subscriptions

Microsoft's New Commerce Experience (NCE) introduced annual and monthly subscription options for Microsoft 365, replacing the historic model where all licences were managed through the EA framework. Under NCE, annual subscriptions are significantly cheaper per seat than monthly subscriptions — but they lock you in for 12 months. Monthly subscriptions carry a premium of approximately 20% but allow licence count adjustments.

The implication for right-sizing: if your organisation purchased Microsoft 365 under NCE annual subscriptions, you may be unable to reduce your seat count until the subscription anniversary date. This makes the timing of your right-sizing programme critical. If you identify unused seats three months into a 12-month NCE annual commitment, the saving is deferred by nine months. Plan your right-sizing to align with your subscription renewal dates.

Using Right-Sizing Data in Your EA Negotiation

Right-sizing data is valuable in Microsoft EA negotiations for two distinct reasons. First, it directly reduces the licence count you commit to in the next agreement — fewer seats means lower total contract value. Second, it demonstrates to Microsoft that your organisation has strong governance and will not simply accept the renewal proposal at face value. This signals credibility and creates negotiating pressure.

The right-sizing argument is most powerful when combined with a competitive evaluation. If your organisation has assessed Google Workspace, Slack, or other alternatives for a subset of your user population, that evaluation creates downward pricing pressure on Microsoft's renewal proposal even if you ultimately stay with Microsoft. Microsoft's discount architecture responds to credible competitive alternatives — the threat of even partial displacement moves pricing.

Our Microsoft negotiation specialists combine right-sizing analysis with benchmarking data showing what comparable organisations pay for the same Microsoft 365 SKUs at the same scale. The combination of reduced scope and benchmarked pricing consistently delivers 20-35% savings on Microsoft EA renewals.

Beyond M365: Azure and Other Microsoft Products

Microsoft 365 is typically the largest component of an enterprise Microsoft EA, but right-sizing discipline applies across the Microsoft portfolio. Azure Reserved Instances and Savings Plans should be reviewed against actual compute usage. Dynamics 365 licences assigned to users who never log in to the platform are a common waste category. Power Platform per-user licences assigned to users who never built or ran a flow or app represent low-hanging fruit.

A comprehensive Microsoft right-sizing programme covers the entire EA portfolio — not just Microsoft 365 — and produces a holistic scope reduction that becomes the basis for renewal negotiation. The Microsoft EA renewal conversation becomes significantly more powerful when you can demonstrate disciplined portfolio-wide rationalisation rather than a narrow seat count exercise.

Key Takeaways