How to Cut Your Microsoft 365 Bill by 40% Without Losing Any Features

Most organisations are overpaying for Microsoft 365 by 20 to 40 percent. Not because they are being charged incorrectly, but because they are paying for licences and features they are not using.

I have audited Microsoft 365 environments for dozens of organisations over the past three years. The same patterns appear every time. This article covers the exact steps I follow to find and eliminate waste — and how you can do the same.

The Four Sources of M365 Overspend

Before diving into the fixes, it helps to understand where the money is going:

1. Orphaned licences — Licences assigned to former employees, shared mailboxes, or service accounts that no longer need a full licence. In a 200-person organisation, this typically accounts for 8 to 15 percent of the total licence bill.

2. Licence over-provisioning — Assigning E3 or E5 licences to users who only need Frontline Worker (F1/F3) licences. A receptionist or warehouse worker rarely needs full Teams, SharePoint, and Power BI capabilities.

3. Duplicate tool spend — Paying for third-party tools that replicate features already included in your Microsoft 365 subscription. The most common examples are Zoom (Teams does the same job), Dropbox (OneDrive is included), and Docusign (Adobe Sign is included in E3+).

4. Unused add-ons — Audio conferencing, Phone System, and Microsoft Defender add-ons that were enabled during a project and never turned off.

Step 1 — Run a Licence Audit

The first step is to get a clear picture of what you are paying for versus what is being used.

In the Microsoft 365 Admin Centre, navigate to Billing → Licences. Export the full licence report to Excel.

For each licence type, check:

• How many licences are purchased
• How many are assigned
• When each assigned user last signed in

Any user who has not signed in within 90 days is a candidate for licence removal or downgrade.

Quick win: Run this report right now. In most organisations, 5 to 10 percent of licences are assigned to accounts that have never been used or have not been used in over six months.

Step 2 — Identify Licence Downgrade Opportunities

Not everyone in your organisation needs the same licence tier. Use the Microsoft 365 Usage Reports (Admin Centre → Reports → Usage) to see which features each user is actually using.

A user who only uses Outlook and Teams for chat does not need an E3 licence at $36/user/month. They can be moved to an F3 licence at $8/user/month — a saving of $28/user/month.

For a 50-person team where 20 users are Frontline Workers, this single change saves:
20 users × $28/month = $560/month or $6,720/year

Step 3 — Audit Third-Party Tool Overlap

Pull your last three months of software invoices and map each tool against Microsoft 365 features:

In most organisations, eliminating duplicate tools saves $15 to $40 per user per month on top of the licence savings.

Step 4 — Review and Remove Unused Add-Ons

In the Microsoft 365 Admin Centre, go to Billing → Your products and review every add-on subscription.

Common add-ons that accumulate and are forgotten:

• Microsoft 365 Audio Conferencing ($4/user/month) — Was this enabled for a specific event or project? Is it still needed?
• Microsoft Teams Phone ($8/user/month) — Are all assigned users actually making calls?
• Microsoft Defender for Business — Is this overlapping with an existing endpoint security solution?

Remove any add-on that cannot be justified with active usage data.

Step 5 — Negotiate Your Renewal

If you are on a Microsoft 365 Enterprise Agreement or CSP agreement, your renewal is negotiable. Microsoft's list prices are rarely what organisations actually pay.

Key negotiation points:

• True-up timing: If you are growing, negotiate a flat rate for the year rather than paying for growth mid-year
• Multi-year commitment: A 3-year commitment typically gets you 10 to 20 percent off list price
• Bundle discounts: If you are adding Azure spend, negotiate a combined discount across both

The Numbers

Here is a realistic example for a 100-person organisation:

Start With a Proper Audit

The fastest way to find your savings is to run a structured audit of your M365 environment. I have put together a comprehensive checklist that covers licences, security settings, compliance, and cost optimisation:

Microsoft 365 Tenant Audit Checklist — $12

It is a 47-point checklist that walks you through every area of your M365 environment, identifies waste, and flags security gaps. Most IT admins complete it in under two hours and find savings that pay for it thousands of times over.

AutomateHQ publishes practical Microsoft 365 and cloud cost guides for IT professionals and finance teams.