Microsoft 365 Licence Audit: Cut the Spend You Forgot About
Most small businesses pay for Microsoft 365 licences nobody uses, because the invoice is small and monthly. Here is what a licence audit looks at, and how to run one properly.
The Microsoft 365 bill is one of the few costs a small business never argues with. It is modest, it arrives monthly, it is charged per person, and it looks like the price of simply existing. So nobody opens it. Meanwhile a licence for someone who left eighteen months ago has been renewing quietly the whole time, and a shared mailbox that never needed a licence has one.
None of this is dramatic. That is exactly why it persists. A licence audit is an hour’s work that usually finds money, and almost always finds a security problem you did not know you had.
What an audit actually looks at
The gap you are hunting is between what you pay for and what is genuinely used. It hides in a handful of predictable places.
Assigned versus active. Every licence is assigned to somebody. Whether that somebody signs in is a separate question. Sort your users by last sign-in date and the accounts that have not been touched in ninety days rise straight to the top.
Leavers. The classic. A former employee still holds a licence, which means the account still exists, which means it is still a way in. The cost is annoying; the exposure is the real issue. Work through the employee offboarding checklist properly rather than treating this as a billing tidy-up — the licence should be the last step, not the first.
Duplicate accounts. People get a second account after a name change, a role change or a migration that went sideways. Test accounts created during a project and never removed. Both consume licences indefinitely.
Shared mailboxes carrying a full licence. A shared mailbox — info@, accounts@, bookings@ — does not need a licence of its own until it grows past a generous size limit. Plenty end up with one anyway, usually because they started life as a real person’s mailbox and nobody converted it when that person left.
People paying for capability they never touch. Someone on Business Premium who works entirely in Outlook on a browser is paying for device management and security tooling nobody has configured for them.
People quietly working around a plan that is too small. The opposite problem, and the more expensive one. A user on Business Basic who needs desktop Office will find a way — a personal copy installed on a work laptop, a colleague’s machine borrowed for the difficult spreadsheet, files exported to a home computer. That is a licensing risk and a data risk, and it never appears on any invoice. Our breakdown of the Microsoft 365 business plans is the reference for sorting out who should sit where.
Add-ons nobody remembers buying. Extra storage bought during a crunch. An audio-conferencing add-on from the year of the office move. A telephony plan bought for a project that ended.
Annual commitments that quietly auto-renewed. Seats you meant to drop, renewed for another year because the reminder went to an inbox nobody watches.
Third-party tools that duplicate what you already pay for. This is the one that catches most businesses. A separate e-signature subscription, a standalone password tool, a device management platform, a cloud backup product — sometimes bought before the Microsoft plan was upgraded, and never revisited. Occasionally the third-party product is genuinely better and worth keeping. The point is to make that call knowingly rather than by inertia.
Right-sizing is not the same as downgrading
There is a tempting version of this exercise where you move everybody to the cheapest plan and declare victory. Resist it.
Business Premium bundles a real set of security and management capability. If you strip it out, the protection does not vanish from your requirements — it just moves to a different invoice, usually a larger one, with more products to administer. For a firm handling client data, or with staff on their own laptops, the bundle is frequently the cheaper route to the same protection.
The honest test is per person, not per company. What does this role actually need to do its job safely? Some people need the full stack. Some need email and a browser. Mixed plans on one tenant are normal, and a properly configured Microsoft 365 environment copes with that without complaint.
How to run it
The process is dull and works.
1. Export the licence report from the Microsoft 365 admin centre. You want users, assigned licences and last sign-in.
2. Match it against your real staff list. Get this from payroll or HR, not from memory. Memory is why the problem exists. Anyone on the licence report who is not on the staff list needs an explanation.
3. Check the sign-in dates. Flag anything dormant. Some dormant accounts are legitimate — a director who logs in twice a year, a seasonal role — but each one should be a decision, not an oversight.
4. Deal with leavers properly. Preserve the mailbox and files first, then remove the licence. Order matters here.
5. Decide each remaining user’s plan and write down why. The reason is what stops the same debate happening next year.
6. Check your renewal date and your subscription terms before you change anything, which brings us to the catch.
The annual commitment trap
Most small businesses are on an annual commitment billed monthly. It feels like a monthly subscription. It is not. The seat count is fixed for the term, and you generally cannot remove seats until renewal — you can only stop them renewing.
The practical consequence: the saving your audit identifies may not land this month. It lands at renewal, and only if somebody remembers to act before the date passes. Find your renewal date, put it in the calendar, and set the audit for a month beforehand. An audit finished a week after auto-renewal buys you a year of the same bill.
Once a year, on a reminder
This is not a project. It is an hour with a spreadsheet, repeated annually and timed to the renewal.
If you would rather someone else did the digging — matched the licence report against reality, flagged the leavers, and told you plainly where you are over- and under-licensed — that is standard IT consultancy work for us. Whether the answer saves you money or tells you to spend a little more in the right place, you will at least know what you are paying for.
Frequently asked questions
What should we do with a leaver's Microsoft 365 licence?
Do not simply unassign it and move on. Block the sign-in first, then decide what happens to the mailbox and the files — usually converting the mailbox to a shared one and moving OneDrive content to whoever picks up the work. Only once the data is safely elsewhere should the licence come off. Strip the licence too early and you can lose access to content you still needed, which is an expensive way to save a few pounds.
Can we reduce our licence count in the middle of a term?
Usually not, if you are on an annual commitment. That commitment fixes your seat count for the year, whether you pay monthly or upfront, and seats generally cannot be removed until renewal. You can normally add seats mid-term, and you can stop unwanted ones renewing. This is precisely why the audit needs to happen before the renewal date rather than after it.
Would moving everyone to a cheaper plan save us money?
It would reduce the invoice, and that is not the same thing. Business Premium bundles device management and security tooling that a small firm would otherwise buy separately, often for more than the difference in plan cost. Downgrading a user who genuinely uses none of it is sensible. Downgrading the whole company to make a number smaller usually means buying the same protection again elsewhere, with more admin.
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