How to Reduce Microsoft 365 Licensing Costs Without Losing Security or Productivity

The short answer

To reduce Microsoft 365 licensing costs, reclaim every licence that is not attached to an active person, then match each user to the cheapest plan that genuinely covers their work and security needs. For many Australian organisations the biggest saving comes from moving users off enterprise plans they do not fully use, or onto frontline plans, rather than chasing a better unit price. Copilot seats should follow a measured pilot, not a blanket rollout.

Where does Microsoft 365 waste usually hide?

Microsoft 365 is often one of the largest recurring software costs in a business, and because it renews predictably, it rarely gets scrutinised. The waste usually sits in a handful of places:

• Licences still assigned to people who have left.
• Departed staff mailboxes kept as licensed user mailboxes for ongoing access.
• Generic accounts such as reception or accounts inboxes licensed as if they were people.
• Everyone on E3 or E5 when only a subset uses the advanced features.
• Add-ons such as Visio, Project, Teams Phone or Power BI Pro bought for a project and never revisited.
• Copilot seats allocated broadly with low ongoing usage.

Microsoft's own admin centre and usage reports show most of this without any extra tooling.

Step 1: Clean up licence assignment

Start with the quick wins:

1. Export the licence assignment report from the Microsoft 365 admin centre and match it against your current HR staff list.
2. Remove licences from leavers and disabled accounts. Keep the data first by converting mailboxes to shared mailboxes or applying retention policies.
3. Convert generic accounts to shared mailboxes where they are only used for email, so they no longer need a paid licence.
4. Check the unassigned licence pool. Purchased but unassigned licences are easy to miss and should be reduced at the next point your agreement allows.
5. Fix offboarding so licence removal happens on the leaver's final day, not months later.

Before removing anything, confirm retention requirements. Some records, such as financial or employment information, must be kept for set periods, so check with whoever owns compliance.

Step 2: Choose the right plan for each type of user

This is where the meaningful money is. The Microsoft 365 range broadly splits into business plans (capped at 300 users per plan), enterprise plans, and frontline plans for staff who mostly use mobile devices or shared terminals.

A common pattern in mid-sized organisations is paying for E3 across the board when Business Premium would deliver equivalent day-to-day productivity and, in several areas, more built-in security through Defender and Intune. If you have fewer than 300 users and no specific enterprise compliance requirement, this comparison is worth doing properly.

The reverse also happens: organisations stack several add-ons onto E3 that together cost more than moving a smaller group of power users to E5. Model both directions before deciding.

Step 3: Do not trade away security to save money

The cheapest plan is not always the cheapest outcome. Business Premium and the enterprise plans include capabilities such as conditional access, device management and email threat protection that support controls in the Australian Cyber Security Centre's Essential Eight. Downgrading users to plans without these, then buying third-party tools to fill the gap, can cost more overall and leave holes.

Before changing plans, confirm which security features you actually rely on. A Microsoft 365 security review shows which controls are switched on, which are licensed but idle, and which plan changes would weaken your position. Not-for-profits should also check eligibility for Microsoft's nonprofit offers; our Microsoft 365 security checklist for not-for-profits covers the security side.

Step 4: Treat Copilot seats as a business case

Microsoft 365 Copilot is licensed per user on top of a qualifying plan, so a blanket rollout adds up quickly. A disciplined approach looks like this:

• Prepare the data first. Copilot surfaces whatever a user has permission to see, so overshared SharePoint sites and Teams need tidying before rollout.
• Pilot with a defined group whose work is heavy in documents, email and meetings, such as executive assistants, bid writers or analysts.
• Measure adoption using the Copilot usage reports in the admin centre, alongside short surveys on time saved.
• Reallocate seats from low-usage users to people who will benefit before buying more.
• Review at renewal whether the seat count still reflects real use.

Step 5: Review add-ons and how you buy

Go through every add-on line on the Microsoft invoice: Visio, Project, Power BI Pro, Teams Phone, audio conferencing, extra storage. Ask who uses each one and whether the capability is already included in a higher plan some users hold.

Then look at the buying model. Monthly versus annual commitments, the licensing partner you buy through, and the timing of changes all affect cost and flexibility. Annual commitments are usually cheaper per seat but restrict reductions mid-term, so align plan changes with your anniversary date and keep headroom only where growth is genuinely expected.

A worked example

Consider a 150-person organisation with everyone on E3, a few Visio and Project add-ons and a recently purchased batch of Copilot seats. A structured review would check how many licences belong to leavers or generic accounts; whether Business Premium covers the security and compliance needs of most staff; whether warehouse or field staff fit a frontline plan; who actually opens Visio and Project; and what Copilot usage looks like after the first few months. Each answer becomes a specific line-item change, with its security impact assessed before anything moves.

How The Technology Office reduces Microsoft 365 costs

The Technology Office reviews Microsoft 365 the way a CIO would: licence by licence, against how your people actually work and the security controls you depend on. We are independent and do not resell licences, so our recommendations are never shaped by partner incentives or volume targets. Every saving we identify is tied to a specific plan, user group and renewal date, and checked against your security baseline before it is implemented.

This work sits within our broader IT cost optimisation service, available to organisations of any size and industry across Australia. If your Microsoft platform is also generating manual reporting effort, see how to reduce manual reporting with Microsoft 365 and Power BI.