This acceptance is expensive. Our experience working with UK mid-market organisations consistently reveals 20-40% optimisation opportunity in Microsoft enterprise licensing spend through combination of volume discount implementation, licence tier right-sizing, Azure consumption optimisation, and purchasing structure improvement.
These aren't theoretical savings requiring exotic technical changes or service disruption. They're straightforward improvements most organisations can implement within 60-90 days, producing immediate cost reductions that compound annually.
This guide provides comprehensive framework for Microsoft enterprise licence cost optimisation, covering Microsoft 365 and Azure together with specific strategies applicable to different organisation sizes and renewal stages.
The Cost Optimisation Opportunity: Where Microsoft Waste Accumulates
Microsoft enterprise licence costs spiral through several predictable mechanisms that most organisations don't actively address.
Retail rate pricing is the largest single waste factor. Businesses paying Microsoft's full retail rates when volume discounts should apply overspend 13-30% depending on organisation size. A 300-employee business on retail M365 rates wastes £15,000-£25,000 annually versus optimised volume pricing.
Licence tier misalignment creates substantial waste. Users assigned E5 licences (£50+ monthly) who never use advanced features should have E3 (£30 monthly). Users on E3 who only need email and Teams should have F3 or Business Basic (£5-7 monthly). We routinely find 15-30% of users on inappropriate licence tiers costing £10,000-£40,000 annually in unnecessary spend.
Unused licences accumulate gradually. Employees depart but their licences remain assigned. Projects end but project team licences persist. Contractors finish engagements but temporary licences continue billing. Most organisations have 5-15% unused licences consuming £8,000-£30,000 annually depending on size.
Azure consumption inefficiency compounds quickly. Oversized VMs, idle dev/test resources running 24/7, unnecessary storage retention, and lack of Reserved Instance strategy creates 20-40% waste in Azure bills. For businesses spending £15,000+ monthly on Azure, this represents £36,000-£72,000 annual waste.
Unsuitable purchasing structure increases costs through EA overcommitment (paying for baseline exceeding actual needs) or retail CSP pricing (missing volume discounts entirely). Wrong purchasing structure costs organisations £15,000-£50,000+ annually depending on size and agreement type.
These factors compound. An organisation paying retail rates (0% discount) with 20% licence misalignment and 10% unused licences wastes approximately 30% of their Microsoft spend. On £200,000 annual Microsoft costs, that's £60,000 unnecessary expense annually or £180,000 over three years.
Microsoft 365 Cost Optimisation Framework
Optimising Microsoft 365 costs requires systematic approach addressing volume pricing, licence alignment, and governance.
Step 1: Implement Volume Discount Pricing
If you're paying retail M365 rates and have 150+ employees, implementing volume discount pricing should be immediate priority. This single action reduces all M365 costs by 13-25% depending on structure chosen.
For 200-400 employee organisations: CSP enterprise volume (13% discount) or EA (20-25% discount depending on negotiation) both provide meaningful savings. CSP offers simplicity and flexibility; EA offers potentially deeper discount with commitment complexity.
For 400+ employee organisations: EA typically provides optimal discount rates (25-35%) if your business accommodates three-year commitments. Larger organisations have negotiating leverage making EA complexity worthwhile.
Volume discount implementation timeline: 2-4 weeks for CSP enterprise volume, 6-12 weeks for EA implementation.
Expected savings: £12,000-£45,000 annually for typical 250-400 employee organisations.
Step 2: Audit and Right-Size Licence Tiers
With volume pricing established, next priority is ensuring users have appropriate licence tiers for their actual needs.
Conduct usage analysis across M365 E5 users. Export login data for advanced features like Advanced Threat Protection, Cloud App Security, Power BI Pro. Identify users never accessing E5-specific capabilities who should downgrade to E3. Each downgrade saves £15-20 monthly per user (£180-240 annually).
Review E3 users for downgrade opportunities. Users requiring only email, Teams, and basic file storage suit F3 or Business Standard/Basic licences costing £7-12 monthly versus £30 for E3. Each downgrade saves £18-23 monthly (£216-276 annually).
Identify frontline workers on knowledge worker licences. Retail staff, warehouse employees, field service workers rarely need full productivity suites. F3 or F1 licences (£6-7 monthly) suit these users versus E3/E5 costing £30-50 monthly.
Expected timeline: 2-3 weeks for usage analysis, 1-2 weeks for licence tier adjustments.
Expected savings: £15,000-£35,000 annually for organisations with significant licence tier misalignment (typically 15-25% of users on wrong tiers).
Step 3: Remove Unused Licences
Audit current licence assignments against active directory to identify unused licences consuming budget without delivering value.
Departed employees whose licences weren't removed represent straightforward waste. Review licence assignments for users with no login activity past 60 days. Remove licences for confirmed departures immediately.
Dormant accounts for contractors, temporary workers, or project-specific access often persist indefinitely. Establish quarterly review process identifying and removing these licences.
Over-provisioned licences "just in case" should be eliminated. Organisations commonly maintain 5-10% buffer of unused licences anticipating growth that may not materialise for months. CSP monthly billing allows provisioning licences within days when actually needed.
Expected timeline: 1-2 weeks initial cleanup, then quarterly ongoing reviews.
Expected savings: £8,000-£25,000 annually depending on organisation size and previous licence governance.
Step 4: Establish Ongoing Governance
Optimisation produces one-time improvement; governance maintains optimisation over time preventing gradual cost creep.
Implement licence assignment processes tied to onboarding/offboarding workflows. New hire receives appropriate licence tier on day one. Departed employee licence removed within 24 hours of termination.
Quarterly licence usage reviews identify drift. Usage patterns change; users promoted may need tier upgrades whilst others change roles requiring downgrades. Quarterly reviews catch these adjustments before significant waste accumulates.
Budget monitoring and alerting catches unexpected licence count increases. If your M365 user count increases 15% quarter-over-quarter, that deserves investigation and explanation.
Expected effort: 4-8 hours quarterly for mid-market organisation once processes established.
Expected value: Prevents cost creep of 8-15% annually that typically occurs without governance.
Azure Cost Optimisation Framework
Azure cost optimisation requires different approach than M365 due to consumption-based billing creating greater complexity and waste potential.
Step 1: Implement Azure Volume Discount
Like M365, Azure volume discount provides foundation savings across all consumption. If you're spending £5,000+ monthly on Azure at retail rates, volume discount implementation should be immediate priority.
CSP enterprise volume (8% discount) or EA (12-25% discount depending on commitment) both reduce Azure consumption costs materially. For most mid-market businesses with variable Azure consumption, CSP's 8% discount without commitment provides optimal balance.
Expected timeline: 2-4 weeks implementation.
Expected savings: £4,800-£28,800 annually for organisations spending £5,000-£30,000 monthly on Azure.
Step 2: Implement Reserved Instance Strategy
For Azure workloads running continuously or on predictable schedules, Reserved Instances provide substantial additional savings beyond volume discount.
Analyse Azure consumption patterns identifying production VMs, databases, and other resources running 24/7 or near-continuously. These suit one-year or three-year Reserved Instance commitments.
Purchase RIs for qualified resources. Three-year RIs provide up to 72% savings versus pay-as-you-go. Combined with volume discount, this produces compound savings on predictable workloads.
Monitor RI utilisation ensuring commitments match actual consumption. Unused RI capacity represents wasted commitment similar to EA baseline overcommitment.
Expected timeline: 2-3 weeks for consumption analysis, immediate RI purchases for qualified resources.
Expected savings: £12,000-£45,000 annually for organisations with 30-50% of Azure consumption suitable for RI commitment.
Step 3: Right-Size Azure Resources
Azure consumption waste frequently results from over-provisioned resources running larger/more expensive configurations than workloads require.
Audit VM sizes against actual CPU/memory utilisation. VMs consistently running under 40% utilisation should be downsized. Each downsize (e.g., D4s to D2s) typically saves £60-80 monthly per VM.
Review database tiers against actual throughput requirements. Production databases over-provisioned on Premium tiers when Standard would suffice waste £200-500 monthly per database.
Identify idle resources consuming costs without delivering value. Dev/test VMs forgotten and running 24/7, storage accounts retaining old snapshots, load balancers serving decommissioned applications.
Expected timeline: 2-4 weeks for comprehensive right-sizing analysis, 1-2 weeks implementation.
Expected savings: £8,000-£35,000 annually depending on previous resource optimisation discipline.
Step 4: Implement Azure Governance and Cost Management
Like M365, Azure governance prevents optimisation gains from eroding through gradual cost creep.
Establish resource tagging policies. Every Azure resource should have tags identifying owner, environment (prod/dev/test), cost centre, and project. This enables cost tracking and accountability.
Implement auto-shutdown policies for dev/test resources. Development VMs should automatically shut down outside business hours unless explicitly exempted. This alone saves 60-75% on dev/test compute costs.
Configure budget alerts at subscription and resource group levels. Alert when consumption exceeds expected patterns, enabling investigation before costs spiral.
Deploy Azure Advisor recommendations regularly. Azure Advisor identifies specific optimisation opportunities based on your actual resource usage patterns.
Expected effort: Initial setup 8-12 hours, ongoing monitoring 4-6 hours monthly.
Expected value: Prevents Azure cost creep of 10-20% annually that typically occurs without governance.
Purchasing Structure Optimisation: EA vs CSP Decision Framework
Beyond specific M365 and Azure optimisations, your underlying purchasing structure materially impacts total costs.
When EA Provides Optimal Value:
- Organisation size 500+ employees
- Highly predictable M365 and Azure needs three years forward
- Internal expertise managing EA complexity and true-ups
- Stable business trajectory with minimal change probability
- Total Microsoft spend exceeding £400,000 annually
EA advantages: Deepest available discounts (potentially 25-40% for larger organisations), direct Microsoft relationship, Software Assurance bundled.
EA disadvantages:
Three-year commitment inflexibility, baseline overcommitment risk, complex true-up administration, commitment penalty if business changes.
When CSP Enterprise Volume Provides Optimal Value:
- Organisation size 150-500 employees
- Variable, growing, or uncertain M365/Azure consumption
- Preference for monthly billing and OpEx structure
- Limited internal licensing management expertise
- Value flexibility over maximum discount percentage
CSP advantages: Competitive volume discounts (13% M365, 8% Azure), monthly billing flexibility, no baseline commitments, simplified administration, no true-up process.
CSP disadvantages: Lower discount percentage than EA (though total cost often competitive when waste considered), no Software Assurance bundled, works through partner rather than Microsoft direct.
For most 200-400 employee mid-market businesses, CSP enterprise volume delivers better total value balancing competitive pricing with operational flexibility. For larger organisations (500+) with predictable needs, EA typically provides optimal discount rates justifying commitment complexity.
Combined M365 and Azure Optimisation: Compound Value
Organisations consuming both M365 and Azure benefit from optimising both simultaneously rather than addressing separately.
Volume discount implementation benefits both products. EA or CSP enterprise volume agreements cover M365 and Azure together, with combined spend potentially qualifying for better discount tiers.
Governance processes should span both products. Quarterly reviews of M365 licence efficiency and Azure consumption optimisation create comprehensive cost management rather than siloed approaches.
Budget planning benefits from holistic view. M365 costs are relatively predictable; Azure costs fluctuate more. Understanding total Microsoft spend enables better financial planning and cost control.
Organisational accountability improves when ownership is clear. Whether IT owns both or split between IT (M365) and engineering (Azure), defined ownership with cost visibility drives better optimisation discipline.
The compound effect: Organisations optimising M365 alone typically save 15-25%. Organisations optimising Azure alone typically save 20-35%. Organisations optimising both together typically save 25-40% on total Microsoft spend because the discipline and processes benefit both products.
Cost Optimisation by Renewal Stage
Your optimisation strategy should consider where you are in your Microsoft licensing lifecycle.
12+ Months Before Renewal:
- Implement volume discount if not already present
- Begin licence tier optimisation and governance processes
- Start Azure right-sizing and RI strategy
- Establish usage monitoring and reporting
- Goal: Enter renewal discussions with clean, optimised baseline
6-12 Months Before Renewal:
- Conduct comprehensive cost audit showing current vs optimised state
- Model EA vs CSP alternatives for renewal decision
- Quantify savings required to justify renewal or change
- Begin negotiation planning if pursuing EA
At Renewal:
- Compare current agreement vs market alternatives with data
- Negotiate from position of strength with clean usage data
- Consider switching agreements if current unsuitable
- Implement new structure with optimisation already planned
Post-Renewal or New Agreement:
- Immediately implement governance preventing waste accumulation
- Quarterly reviews maintain optimisation
- Continuous improvement rather than waiting for next renewal
Mid-Contract Optimisation:
- Volume discount improvements possible mid-term if changing providers
- Licence tier optimisation and unused licence removal actionable any time
- Azure optimisation doesn't require contract changes
- Build foundation for next renewal negotiation
The businesses achieving lowest Microsoft costs don't wait for renewal cycles—they continuously optimise and enter renewals from position of strength.
Case Study: 380-Employee Professional Services Firm Complete Optimisation
A UK professional services business with 380 employees approached us 18 months into their three-year EA with concerns about escalating Microsoft costs.
Initial state:
- M365: 380 E3 licences, 45 E5 licences
- Azure: £16,500 monthly average consumption
- EA with 23% discount on M365, 15% on Azure
- 420 user baseline commitment
- Total annual Microsoft spend: £287,400 (£135,600 M365 + £151,800 Azure)
Cost audit revealed:
- Paying for 420 baseline but deploying 425 average (slightly over)
- 22 E5 users never accessing E5-specific features (should be E3)
- 38 users on E3 requiring only email/Teams (should be Business Standard)
- 17 unused licences for departed employees
- Azure: 35% consumption on always-on VMs suitable for RIs
- Azure: Multiple oversized VMs running under 30% utilisation
- Azure: Dev/test resources running 24/7 unnecessarily
Optimisation implementation over 90 days:
M365 Changes:
- 22 E5→E3 downgrades: £5,280 annual saving
- 38 E3→Business Standard downgrades: £8,664 annual saving
- 17 unused licence removal: £6,732 annual saving
- Baseline reduction to 405 users: £5,148 annual saving
- M365 subtotal saving: £25,824 annually
Azure Changes:
- Reserved Instances for 35% qualified consumption: £21,384 annual saving
- Right-sizing oversized VMs: £9,240 annual saving
- Auto-shutdown dev/test environments: £7,920 annual saving
- Storage lifecycle policies: £2,640 annual saving
- Azure subtotal saving: £41,184 annually
Total annual saving: £67,008 (23% reduction from £287,400 to £220,392) Three-year value: £201,024
At EA renewal 18 months later, they had clean, optimised baseline making renewal negotiation straightforward. They ultimately chose CSP enterprise volume for flexibility despite EA offering marginally deeper discount, valuing operational simplicity over 3-4% additional discount.
Implementation Resources and Timeline
Comprehensive Microsoft enterprise licence cost optimisation is achievable within 60-90 days for most mid-market organisations.
Weeks 1-2: Discovery and audit
- Compile complete M365 licence inventory
- Export Azure consumption data past 3-6 months
- Analyse usage patterns across both products
- Identify quick wins (unused licences, obvious waste)
Weeks 3-4: Volume discount implementation
- Evaluate EA vs CSP enterprise volume options
- Select optimal purchasing structure
- Begin migration process if switching providers
- Execute volume discount implementation
Weeks 5-7: M365 optimisation
- Right-size licence tiers based on usage analysis
- Remove unused licences
- Implement governance processes
- Configure usage monitoring
Weeks 8-10: Azure optimisation
- Purchase Reserved Instances for qualified resources
- Right-size VMs and databases
- Implement auto-shutdown policies
- Configure cost management and budgets
Weeks 11-12: Governance and monitoring
- Establish quarterly review processes
- Document optimisation procedures
- Train relevant staff on cost management
- Implement ongoing alerting and reporting
Expected resource commitment: 60-120 hours across IT, finance, and procurement teams for initial implementation. Ongoing: 8-12 hours quarterly for maintained optimisation.
Expected ROI: Most organisations achieve 20-40% cost reduction on total Microsoft spend, providing 10:1 to 30:1 return on time invested.
Conclusion: Microsoft Cost Optimisation as Strategic Discipline
Microsoft enterprise licence costs represent strategic expenses deserving active management rather than passive acceptance. The optimisation opportunity—typically 20-40% of total Microsoft spend—is too substantial to ignore.
The businesses controlling Microsoft costs most effectively treat optimisation as ongoing discipline rather than one-time project. They implement volume discount pricing appropriate for their size, continuously align licence tiers to actual needs, actively manage Azure consumption and Reserved Instance strategy, establish governance preventing cost creep, and review purchasing structure at renewal ensuring optimal arrangements.
These practices don't require expensive consultants or months of effort. They require systematic approach, stakeholder buy-in, and commitment to treating Microsoft licensing as managed expense rather than fixed overhead.
For UK mid-market organisations spending £100,000-£500,000 annually on Microsoft, cost optimisation typically saves £20,000-£150,000 annually. Three-year value ranges £60,000-£450,000. These savings flow directly to bottom line whilst maintaining identical or improved service levels.

Qwantro specialises in Microsoft enterprise licence cost optimisation for UK mid-market businesses.
We help organisations implement volume discount pricing (13% M365, 8% Azure), conduct comprehensive cost audits identifying savings opportunities, and establish governance maintaining optimisation over time.
Contact us to discover your organisation's optimisation potential.
Discover Your Microsoft Cost Savings Potential Get a free comprehensive Microsoft cost audit showing exactly how much you're overspending and where savings opportunities exist. Most mid-market organisations save 20-40% on total Microsoft spend. Contact Qwantro on
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