Microsoft licensing: where the recoverable cost actually sits
EA volume discounts were removed in November 2025 and list prices rose in July 2026. The two changes compound, and for a large estate the effective increase is closer to 20 percent than 8.
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Microsoft is usually the largest single software line in an enterprise budget. Over the last year it has also become one of the most volatile, because two separate changes landed within eight months of each other and they compound.
What actually changed, and why it matters more than the headline
1 November 2025: volume discounts removed
Microsoft eliminated the A/B/C/D volume discount tiers on Online Services purchased through Enterprise Agreement, MPSA and OSPA. Every customer now pays what was previously Level A pricing, regardless of seat count. Level B previously delivered roughly 6 percent off list, Level C around 9 percent, and Level D around 12 percent.
Two important carve-outs. Azure consumption is not affected by this change, and perpetual licences with Software Assurance still attract volume discounts. It is specifically the Online Services line, meaning Microsoft 365, Office 365, Dynamics 365, Defender, Intune, Windows 365 and Copilot.
If your agreement runs past November 2025 you keep your existing pricing until renewal, but anything new added to the agreement is at the new pricing immediately. The organisations hit hardest are mid-market estates in the 500 to 5,000 seat range that previously sat in Level B or C.
1 July 2026: list price increase
Microsoft raised list prices across most commercial suites. The increases were uneven, which matters because it changes the arithmetic that justified your current licence mix.
- Microsoft 365 E3, $36 to $39 per user per month, an increase of 8.3 percent
- Microsoft 365 E5, $57 to $60 per user per month, an increase of 5.3 percent
- Office 365 E3, $23 to $26 per user per month, roughly 13 percent and the steepest in the lineup
- Microsoft 365 F1, $2.25 to $3, and F3, $8 to $10 per user per month
- Business Basic, $6 to $7, and Business Standard, $12.50 to $14
- Office 365 E1 at $10 and Business Premium at $22, unchanged
Microsoft attributed the increase to bundled additions including Copilot Chat, Defender for Office 365 P1 into E3, and additional Intune capability across both tiers.
The compounding effect is the real story. An 8.3 percent list increase on E3 sounds manageable. Applied on top of the loss of a 12 percent volume discount at renewal, the effective increase for a large estate previously at Level D lands closer to 20 percent. Analysis of a 25,000-seat E5 estate that previously held Level D has put the annual impact in the region of $3 million. Model both changes together, because modelling either alone understates the position substantially.
The AI tier arrived, and it changes the maths
Microsoft 365 Copilot remains a $30 per user per month add-on on top of a qualifying base licence. Two things around it have shifted.
Copilot Business, for tenants of up to 300 users, moved to $21 per user per month when the $18 promotional rate ended on 30 June 2026. Alongside it, Microsoft introduced bundled SMB SKUs on 1 July 2026: Business Standard with Copilot at $23.50, and Business Premium with Copilot at $32.
Microsoft 365 E7, the Frontier Suite, became available on 1 May 2026 at $99 per user per month. It bundles Microsoft 365 E5, Microsoft 365 Copilot, Agent 365 and the Entra Suite. This is the first new enterprise edition since E5 launched in 2015. Agent 365 is also sold standalone at $15 per user per month.
Do the E7 arithmetic before anyone tells you it is a saving
At post-July pricing, E5 at $60 plus Copilot at $30 is $90 against E7 at $99. On those two components alone E7 is more expensive. The bundle only produces a saving if you genuinely need Agent 365 and the Entra Suite as well, and need them for the same users.
That is the whole question, and it is a usage question rather than a pricing question. Microsoft is running promotional discounts on E7 through the end of 2026, in the region of 10 to 15 percent depending on seat count and term, which is worth knowing before you accept list.
There is one further wrinkle. Copilot Cowork, generally available since 16 June 2026, requires a Copilot licence but bills task usage separately through Copilot Credits. The seat licence gets you access, consumption drives additional cost. If you are budgeting Copilot purely on a per-seat basis, this is an uncosted line.
Where the recoverable cost sits in a typical estate
Uniform premium tiers across a non-uniform workforce
The gap between E3 and E5 is now $21 per user per month at list, which across 1,000 users is roughly $252,000 a year. That is a decision worth making deliberately rather than by default.
The honest test is not whether E5 features are good. It is whether they are deployed and used for that specific user. E5 bundles Defender for Endpoint P2, Defender for Cloud Apps, Entra ID P2, the full Purview compliance set, Insider Risk Management and eDiscovery Premium. If those are configured and in use, E5 frequently wins on consolidation. If they are licensed and idle, you are paying $252 per user per year for capability nobody switched on.
The double-pay, and the reverse double-pay. Many estates hold E5 security entitlements while separately paying a third-party vendor for the same capability. That is paying twice. But the reverse is equally common and less discussed: organisations on E3 paying an additional $15 to $40 per user per month in third-party security and compliance add-ons that E5 would have bundled. Map entitlement against your deployed tooling in both directions before deciding which way to move.
Frontline staff on knowledge-worker licences
F1 at $3 and F3 at $10 exist for staff who do not need a full desktop productivity suite. Retail, logistics, manufacturing and healthcare estates frequently carry large populations on E3 or E5 that belong on the F-series, usually because the distinction was never drawn at purchase. For most organisations in the 250 to 5,000 employee range, the cost-efficient answer is a deliberate mix: E5 for compliance, finance and leadership, E3 for general staff, F-series for frontline.
Leavers, dormant accounts and unassigned licences
Unassigned licences renew automatically. Departed staff sitting on E5 and Copilot seats until someone manually finds them is now a materially more expensive problem than it was, because the per-seat cost of the mistake has risen. Service accounts on full user licences and contractors retaining access after contract end fall into the same category. Unglamorous, and reliably worth recovering.
Copilot licences bought ahead of adoption
At $30 per user per month, broad Copilot deployment on the assumption of broad adoption is one of the more expensive assumptions available. Microsoft has run substantial promotional discounting on Copilot without that meaningfully shifting adoption numbers, which is itself informative.
The disciplined approach is to license a measured pilot, instrument daily active use rather than logins, and expand from evidence. If you have already bought broadly, that usage data is your negotiating position at renewal.
Dynamics 365 modules and role-based licensing
Business application platforms are licensed by module and by user role. Estates accumulate module entitlements for functions that were scoped and never implemented, and full-user licences for staff who only need read access or light interaction. Team Member and other role-based licences are cheaper and consistently underused.
What to do before your renewal
- 01Start six months out, not six weeksTime is the only real leverage you have, and it matters more now that the automatic discount is gone. Nothing else on this list works without it.
- 02Model the discount removal and the price rise togetherRebuild your baseline at Level A pricing with post-July list rates. Do this before Microsoft anchors the conversation, so you are negotiating against your own number rather than reacting to theirs.
- 03Pull actual feature usage, not assigned licencesAssignment tells you what you bought. Usage tells you what you need. The delta is your entire case.
- 04Segment users honestly into three or four tiersE5, E3 and F-series populations built from job function and real requirement, not from administrative convenience.
- 05Map entitlement against your third-party stack, both waysCapability you hold in the bundle and pay a vendor for, and capability you buy separately that a higher tier would include.
- 06Reconcile against HR dataLeavers, dormant accounts, service accounts and unassigned seats. Immediate and certain recovery.
- 07Get Copilot adoption data before you renew or expand itDaily active use per licensed user. And cost Copilot Credits consumption separately if Cowork is in scope.
- 08Run the E7 arithmetic yourselfE5 plus Copilot is $90 against E7 at $99. E7 only wins if Agent 365 and Entra Suite are genuinely needed by the same users. Ask for the current promotional rate rather than accepting list.
- 09Model at least two agreement structuresWith EA volume discounts gone for Online Services, the CSP route deserves genuine comparison rather than assumption. Price both properly.
- 10Negotiate what is still negotiableThe automatic discount is gone but term length, uplift caps, reduction rights at anniversary, price protection on mid-term additions and ramp structures all remain on the table. Over a three-year term these are frequently worth more than the discount you lost.
The thing that determines the outcome
Every point above reduces to the same one: you need to know what you actually use before you negotiate what you buy. Microsoft already knows. They can see your consumption telemetry. If you arrive at the table without that picture, you are negotiating against a counterpart with better information about your estate than you have.
That was always true. With the volume discount removed and list prices up, the cost of arriving unprepared has simply gone up with it.
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