Microsoft 365 licensing: a guide for finance directors

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. The three most common causes of waste are simple: paying for licences nobody uses, buying a higher tier than the business 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. Lanmark is a Microsoft Direct Cloud Solution Provider, and the same patterns come up again and again in the estates we review.

How Microsoft 365 licensing works

Microsoft 365 is licensed per user, not per device. Each licence is assigned to a named person, billed 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.

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.

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. Paying the monthly premium on licences that are genuinely permanent is money handed over for flexibility you will never use.

The main plans in plain English

• Business Basic. Web and mobile versions of the Office apps, plus email, Teams and file storage. 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). The standard choice for most office-based staff.
• Business Premium. Business Standard plus the security and device-management layer most small and medium businesses 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, and it bundles protection that would otherwise cost more to buy separately.
• Enterprise E3 and E5. These sit above the 300-user Business cap. 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

Two decisions account for most of the money won or lost: whether an SMB should sit on Business Premium or an Enterprise plan, and whether an enterprise estate needs E5 or whether E3 will do.

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 needs advanced data governance. 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 needed for less.

Seven ways SMBs overspend on Microsoft 365

Overspend is rarely one big mistake. It is several small ones that compound.

1. Unassigned and unused licences. Bought for growth or a project and 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 tier when the advanced features go unused.
4. Duplicating what is already included. Paying separately for third-party multi-factor authentication, basic backup or simple device management that the existing 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.

A note on security: cheaper is not the same as exposed

This guide is not an argument for downgrading everything to save money. The real risk for a small business is 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 the basics for a modern business. The NCSC’s guidance for small organisations sets out the controls every business should have, and most 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 compares what you are billed for against what is assigned and used, checks each plan against what the role needs, and surfaces the overspend and any protection gaps. Lanmark’s Microsoft 365 licence review does exactly this and produces a written summary of findings, with no obligation to switch provider. As a Microsoft Direct CSP partner, we can see and act on your licensing position directly rather than at one remove through a distributor.

For businesses weighing how they buy Microsoft licences more broadly, our guide to Microsoft Enterprise Agreement vs CSP covers the next decision up.

Book a licence review

If this guide has prompted a question you cannot answer from your billing portal, a review is worth having. See our Microsoft 365 services and get in touch to talk it through.