Most UK businesses pay for Microsoft 365 every month without a clear view of whether they are on the right plans, and a meaningful share are quietly overspending. Microsoft 365 licensing is rarely revisited once it is set up, yet the three most common causes of waste are simple to describe: paying for licences nobody uses, buying a higher tier than the business actually needs, and duplicating tools that Microsoft 365 already includes. This guide is written for the finance director who suspects the bill is higher than it should be but does not yet have the vocabulary to challenge it. As a Microsoft Direct Cloud Solution Provider accredited with the Microsoft Support Service Designation, an accreditation held by only a handful of partners worldwide, Lanmark reviews Microsoft 365 estates for a living, and the same patterns come up again and again.
What follows is a plain-English tour of how the licensing works, what the main plans actually give you, where the money tends to leak, and how to cut cost without weakening the protection your business depends on.
How Microsoft 365 licensing actually works
Microsoft 365 is licensed per user, not per device. Each licence is assigned to a named person, billed either monthly or annually, and gives that person a defined set of apps and services. If someone leaves and their licence is not reassigned or removed, you keep paying for it. That single fact is behind a large share of the waste we find.
Two plan families matter for most businesses. The Business plans (Basic, Standard, and Premium) are designed for small and medium organisations and are capped at 300 users. Above that line, or where specific capabilities are needed, businesses move to the Enterprise plans (E3, E5, and the frontline plan F3). You can mix plans across your workforce, which is the key to controlling cost, more on that below.
The mechanic that catches finance teams out most often is the purchasing model, known as the New Commerce Experience. It offers monthly, annual, and three-year terms. An annual term is the cheaper unit price but commits you for twelve months, with only a short cancellation window at the very start of the term. A monthly term lets you reduce licence counts whenever you like, but it costs roughly a fifth more for that flexibility. Choosing the wrong term is one of the most avoidable costs in the whole estate. Paying the monthly premium on licences that are genuinely permanent is money handed over for flexibility you will never use.
The main Microsoft 365 plans, in plain English
It helps to think about the plans in terms of what the business gets, rather than the feature lists Microsoft publishes.
Business Basic gives web and mobile versions of the Office apps, plus email, Teams, and file storage. There are no installed desktop apps. It suits light users who live in a browser.
Business Standard adds the full desktop Office apps (Word, Excel, Outlook, and the rest) installed on the user’s machine. It is the standard choice for most office-based staff who need the desktop applications.
Business Premium is Business Standard plus the security and device-management layer that most small and medium businesses actually need: multi-factor authentication and identity protection, device management, and threat protection against phishing and malware. For an SMB, this is usually the right ceiling. It bundles protection that would otherwise cost more to buy separately.
Enterprise E3 and E5 sit above the 300-user Business cap and serve larger or more complex organisations. E3 covers the core apps and management at enterprise scale. E5 adds advanced security, advanced compliance and data governance, analytics, and telephony. The step from E3 to E5 is where the largest licensing decisions, and the largest potential for overspend, tend to live.
Business Premium vs E3 vs E5: where the money is
Two decisions account for most of the money won or lost on Microsoft 365: whether an SMB should sit on Business Premium or an Enterprise plan, and whether an enterprise estate genuinely needs E5 or whether E3 will do. The table below sets out the practical differences.
| Consideration | Business Premium | Enterprise E3 | Enterprise E5 |
|---|---|---|---|
| Designed for | SMBs up to 300 users | Larger organisations, no user cap | Larger or regulated organisations |
| Desktop Office apps | Included | Included | Included |
| Security and identity layer | Strong, included as standard | Core, advanced tools cost extra | Most advanced, included |
| Device management | Included | Included | Included |
| Advanced threat protection | Included (Defender for Business) | Add-on | Included |
| Advanced compliance and data governance | Basic | Basic | Included |
| Telephony (Teams Phone) | Add-on | Add-on | Included |
| Typical commercial fit | Best value for most SMBs. | Baseline for over-300-user estates | Justified by genuine need, not by default |
The honest guidance is straightforward. For most businesses under 300 users, Business Premium is the right ceiling: it delivers more built-in protection than E3 for less money, and the jump to an enterprise plan rarely pays for itself below the cap. Above 300 users, E3 is the sensible baseline, and the move to E5 should be driven by a specific, named requirement, for example a regulated firm that genuinely needs advanced data governance or built-in compliance tooling. Many businesses pay for E5 and use a fraction of it. Where that is the case, E3 plus one targeted add-on often delivers what is actually needed for less.
Seven ways SMBs overspend on Microsoft 365
In practice, overspend is rarely one big mistake. It is several small ones that compound. These are the seven we find most often.
1. Unassigned and unused licences. Licences bought for growth or a project that were never assigned, sitting on the bill month after month. 2. Leavers never deprovisioned. A licence stays active after someone leaves because removing it was nobody’s job. This is the single most common source of waste. 3. E5 where E3 would do. Paying for the top enterprise tier when the advanced features go unused, where E3 plus a targeted add-on would cover the real requirement. 4. Duplicating what is already included. Paying separately for third-party multi-factor authentication, basic backup, or simple device management that the existing Microsoft 365 plan already provides. 5. One plan for everyone. Putting the whole workforce on the same premium plan when frontline, shift, or light users could sit on a cheaper tier such as F3 or Business Basic. 6. Monthly-term premiums on permanent roles. Paying the roughly one-fifth monthly premium for flexibility on licences that will never be reduced. 7. Renewals waved through. Letting the annual renewal pass without a right-sizing check, so last year’s mistakes are bought again.
Any one of these is easy to miss. Together they are usually the difference between a fair Microsoft 365 bill and an inflated one.
A note on security: cheaper is not the same as exposed
It would be a mistake to read this guide as an argument for downgrading everything to save money. The real risk for a small business is the opposite one: stripping out protection it needs and finding out the hard way. The goal is right-sizing, not cost-cutting for its own sake.
The part to protect is the security and identity layer. Multi-factor authentication, device management, and threat protection are not optional extras for a modern business, they are the basics. The NCSC’s guidance for small organisations sets out the controls every business should have in place, and most of them map directly to what Business Premium includes. Good right-sizing removes waste, unused licences, over-specified plans, duplicated tools, while keeping, or strengthening, that protection. If a saving comes at the cost of your security baseline, it is not a saving.
How a licence review works
A Microsoft 365 licence review is simpler than it sounds. It compares what you are billed for against what is actually assigned and used, checks each plan against what the role genuinely needs, and surfaces the overspend and any protection gaps. Lanmark’s free Microsoft 365 licence review does exactly this and produces a written summary of findings, with no obligation to switch provider. Because Lanmark is a Microsoft Direct CSP partner, we can see and act on your licensing position directly, rather than working at one remove through a distributor.
For businesses sitting above the SMB band and weighing how they buy Microsoft licences more broadly, our guide to the Microsoft Enterprise Agreement versus CSP covers the next decision up.
Frequently asked questions
What is the difference between Microsoft 365 Business Premium and E3?
Business Premium is built for small and medium businesses up to 300 users and bundles the desktop apps with a strong security and device-management layer at an SMB price. E3 is an Enterprise plan with no user cap and a different mix of compliance and management features, but without some of the security tools that Business Premium includes as standard. For most SMBs under 300 users, Business Premium gives more protection for less money. E3 becomes relevant above 300 users or where specific enterprise features are required.
Do I really need E5, or is E3 enough?
E5 adds advanced security, advanced compliance, analytics, and telephony on top of E3. It is the right choice when a business has a genuine need for those capabilities, for example a regulated firm that needs advanced data governance. Many businesses pay for E5 and use only a fraction of it. In a lot of cases E3 plus one targeted add-on delivers what is actually needed for less. A licence review will show which applies to you.
How can I tell if we are paying for Microsoft 365 licences we do not use?
Compare the number of licences you are billed for against the number actually assigned to active users, then check that assigned users are still employed and still need that plan. Unassigned licences, licences left on leavers, and users on a higher tier than their role requires are the three most common sources of waste. Your billing portal shows assigned versus available licences, and a partner can produce this view quickly.
What is the New Commerce Experience and why does it matter for budgeting?
The New Commerce Experience is Microsoft’s current purchasing model. It offers monthly, annual, and three-year terms. A monthly term gives flexibility to reduce licence counts but costs roughly a fifth more than an annual term. An annual term is cheaper but commits you for twelve months, with only a short cancellation window at the start. Choosing the wrong term is a common and avoidable cost, particularly paying the monthly premium on licences that are genuinely permanent.
Can I reduce our Microsoft 365 costs without weakening our security?
Usually yes. Most savings come from removing unused licences, right-sizing over-specified plans, and dropping third-party tools that Microsoft 365 already includes, none of which weakens protection. The part to protect is the security and identity layer: multi-factor authentication, device management, and threat protection. Good right-sizing cuts waste while keeping, or improving, that layer.
Does Lanmark charge for a Microsoft 365 licence review?
No. Lanmark’s Microsoft 365 licence review is free and carries no obligation to switch provider. It is delivered by a Microsoft Direct CSP partner accredited with the Microsoft Support Service Designation, and produces a written summary of what you are paying for, what you are using, and where savings or protection gaps exist.
Book a free Microsoft 365 licence review
If this guide has prompted a question you cannot answer from your billing portal, that is usually the sign a review is worth having. Lanmark’s free Microsoft 365 licence review gives you a clear, written picture of what you are paying for, what you are using, and where the savings and any protection gaps sit, with no obligation to change provider. Book your free licence review or get in touch with the team to talk it through.
*Lanmark is a Microsoft Direct CSP partner accredited with the Microsoft Support Service Designation, an accreditation held by only a handful of partners worldwide. We help UK SMBs get Microsoft 365 right, both the cost and the protection.*