Microsoft 365 Cost Optimisation Strategies

Microsoft 365 has become a default for many businesses, and it's easy to understand why—email, documents, collaboration, and cloud storage in one subscription. But as your organisation grows, so does your M365 bill. What started as a few hundred dollars per month can easily reach thousands, especially if you're not paying attention to what you're actually using.

The good news: most businesses are overspending on their M365 subscriptions. By auditing your usage, right-sizing your licences, and implementing smart configuration choices, you can often reduce your M365 costs by 20-40% without any loss of functionality. This article walks through the practical steps to achieve those savings.

1. Audit Your Current Licenses

The first step to reducing costs is understanding exactly what you're paying for. Many businesses have accumulated licences over the years—some for former employees, some for temporary projects, and some that are simply no longer needed.

What to audit:

• All active licences: Review your Microsoft 365 admin center and list every licence type and how many of each you have.
• User assignments: Check which licences are assigned to which users. Look for inactive or rarely-used accounts.
• Third-party add-ons: Many M365 subscriptions include optional add-ons (like Power BI, Defender, or Intune). Are you actually using them?
• Expired user accounts: Departed employees whose accounts weren't properly deactivated and whose licences are still charging.
• Shared mailbox and resource mailbox costs: These can add up if you have many.

Tools to use:

• Microsoft 365 Admin Center: The built-in licence management interface shows all your licences and assignments.
• Microsoft Usage Analytics: Provides data on how each user is actually using their licences. If someone has a licence but hasn't used it in 90 days, it's likely wasted.
• Third-party cost optimisation tools: Tools like CloudHealth, Azure Cost Management, or M365-specific tools can provide detailed cost breakdowns and recommendations.

Typical findings: Most businesses find 10-30% of their licences are wasted. For a 100-user organisation, that could mean 10-30 unneeded licences—potentially $2,000-10,000+ per month in wasted spend.

2. Right-Size Your License Tiers

Microsoft 365 offers multiple license tiers, and not every user needs the most expensive one. Many organisations buy all users the same tier, even though their roles have very different requirements.

Common M365 license tiers (AU pricing, approximate):

• Microsoft 365 Basic: Email (Exchange Online), SharePoint, OneDrive, Teams. Suitable for users who only need email and basic collaboration.
• Microsoft 365 Business: Includes Office desktop apps, email, collaboration. Suitable for most standard users.
• Microsoft 365 Business Premium: Adds advanced security (Defender, Intune, Entra ID P1). Suitable for organisations needing enhanced security.
• Microsoft 365 E3: Enterprise-grade with compliance features, advanced security, and unlimited cloud storage. Suitable for larger organisations with complex needs.
• Microsoft 365 E5: Top-tier with advanced compliance, eDiscovery, and premium security. Suitable for organisations with specific regulatory requirements.

How to right-size:

• Identify user categories: Not all users are the same. A receptionist needs different features than a finance manager or a developer.
• Map features to roles: Document which features each role actually uses. If 70% of users only need email and OneDrive, they might not need the full Business or E3 licence.
• Implement role-based licensing: Assign licences based on role rather than a one-size-fits-all approach. This can reduce costs significantly.
• Review quarterly: As roles change and new users join, review licence assignments to ensure they match current needs.

Example savings: A 50-user organisation where 30 users only need email might save by moving those 30 users from Business Premium ($18/month) to Basic ($6/month)—a saving of $360 per month, or $4,320 per year.

3. Optimise Storage and Data Management

Microsoft 365 includes cloud storage with your licences, but there are additional costs to consider:

• OneDrive storage: Included in most M365 plans (1TB per user with Business, unlimited with E3/E5). If you have separate OneDrive for Business subscriptions, those are additional costs.
• SharePoint storage: Included in most plans, but with limits. If you exceed the included storage, you'll need to purchase additional storage.
• Exchange Online storage: Included in most plans, but with per-mailbox limits. Large mailboxes can consume significant storage.

Optimisation strategies:

• Implement retention policies: Configure retention policies that automatically delete old emails, files, and data that's no longer needed. This reduces storage consumption and costs.
• Use storage tiers: If you're using Azure Blob Storage alongside M365, move older, less-frequently accessed data to cheaper storage tiers (Archive, Cold, etc.).
• Compress large files: Encourage users to compress large files before uploading to SharePoint or OneDrive.
• Monitor storage usage: Regularly review storage consumption by department and user to identify anomalies and optimise where possible.

4. Automate License Management

Manual license management is error-prone and time-consuming. Automation helps you stay on top of your M365 spend and avoid over-provisioning.

Automated processes to implement:

• Automatic de-provisioning: When an employee leaves, their licences should be automatically removed and their data archived. This prevents "ghost" licences that continue to charge.
• Usage-based alerts: Set up alerts for users who haven't accessed their account in 30, 60, or 90 days. These are likely candidates for licence removal.
• Role-based licence assignment: When a new user joins, assign the appropriate licence automatically based on their role, not a default "everyone gets the same" approach.
• Quarterly licence reviews: Schedule regular reviews to check licence assignments against actual usage and make adjustments.

Tools for automation:

• Microsoft 365 Admin Center: Basic automation capabilities for licence management.
• Power Automate: Microsoft's workflow automation tool can create custom licence management workflows.
• Third-party M365 management tools: Tools like ServiceNow, Jira Service Management, or M365-specific tools can provide more advanced automation and reporting.

5. Negotiate Volume Discounts and Committed Spend

If you're a larger organisation, you may be eligible for volume discounts or committed spend agreements that reduce your per-unit costs.

• Volume discounts: Buying in bulk (e.g., 100+ licences) can unlock significant per-unit discounts. Microsoft offers various volume licensing programmes.
• Committed spend agreements: If you commit to a certain level of annual spend, Microsoft may offer discounts in exchange for that commitment.
• Enterprise Agreements (EA): For organisations with 500+ licences, an Enterprise Agreement provides the best pricing and flexibility.
• Microsoft Azure Hybrid Benefit: If you have on-premise Windows or SQL Server licences, you can use them in Azure and save significantly on software costs.

How to negotiate:

• Know your usage: Have detailed data on your current usage, growth plans, and projected needs.
• Understand the alternatives: Knowing what AWS or other Microsoft products cost gives you leverage in negotiations.
• Time it right: End-of-quarter or end-of-year can be good times to negotiate, as sales teams are trying to hit targets.
• Consider a Microsoft partner: A qualified Microsoft partner can often get better pricing and provide valuable negotiation support.

Conclusion

Microsoft 365 is a powerful platform, but like any recurring expense, it requires active management to avoid overspending. By implementing the strategies outlined in this article—auditing your licences, right-sizing your tiers, optimising storage, automating management, and negotiating better terms—you can significantly reduce your M365 costs without sacrificing the functionality your business relies on.

The key is to make cost optimisation an ongoing practice, not a one-time project. As your organisation grows and changes, your M365 needs will change too. Regular reviews ensure you're always paying for exactly what you need, no more and no less.

If you'd like a professional assessment of your current M365 spend and a custom optimisation plan, our team at Cloud Grand Pty Ltd can help you identify savings opportunities and implement the changes that make sense for your business.