Microsoft 365 License Audit: Self-Assessment Checklist

Why a Self-Audit Beats Waiting for Microsoft

Microsoft does not run punitive compliance audits on Microsoft 365 in the way Oracle audits on-premises software estates. But that asymmetry works against enterprise buyers in a subtler way: because there is no external audit forcing a reckoning with your licence estate, the waste compounds silently, year after year, through every EA renewal.

In our engagements, we routinely find enterprises renewing their Microsoft 365 EA at the same seat count and SKU mix they had three years ago — despite significant workforce changes, product consolidations, and feature additions in the Microsoft stack that rendered several standalone SKUs redundant.

A structured self-audit, conducted 90 days before your EA anniversary, serves two purposes. It identifies savings that can be captured immediately through seat removal and SKU downgrades. And it produces the analytical foundation for a commercial negotiation — demonstrating to Microsoft that you have a credible internal view of your estate, which shifts the leverage dynamic significantly.

Phase 1: User & Seat Inventory (Control Points 1–7)

The first phase establishes who actually has a Microsoft 365 licence assigned, whether they are active, and whether the assignment reflects current organisational reality. This phase alone typically identifies 8–12% waste in organisations with more than 2,000 seats.

• 1. Active vs Assigned User Count Pull the "Active Users" report from Microsoft 365 Admin Centre. Compare active users in the last 30 days against total assigned licences. Any gap greater than 5% warrants investigation. Typical finding: 8–15% of assigned licences show zero activity in the past 90 days.
• 2. Departed Employee Licence Retention Cross-reference your HR offboarding records against active Microsoft 365 accounts. Licences for departed employees are frequently retained to maintain mailbox access for compliance purposes — but this should be handled via shared mailboxes or litigation holds, not full user licences. Each retained full licence costs £300–£700 per year unnecessarily.
• 3. Service Account Licensing Identify service accounts, shared mailboxes, and non-human accounts with full user licences assigned. Shared mailboxes do not require a standalone licence in Microsoft 365. Service accounts typically need only Exchange Online Plan 1 rather than E3 or E5.
• 4. Guest User Licence Status Guest users in your Azure AD tenant consume licences under specific conditions. Audit your guest user population and confirm that guest access is not being used as a substitute for proper licensing — and conversely, that compliant guest access is not triggering unnecessary full licence assignments.
• 5. Contractor and Temporary Worker Licences Review licences assigned to contractors, agency workers, and fixed-term employees. These users frequently retain licences beyond contract end dates. Implementing a governance process for contractor licence lifecycle can recover 2–4% of total M365 spend annually.
• 6. Geographic Licence Distribution vs Headcount In multi-geography organisations, compare licence assignments by geography against current headcount by geography. Acquisitions, restructurings, and office closures often leave licence pools misaligned with actual headcount.
• 7. Shared Device Licensing Eligibility For frontline and shift workers, confirm whether Microsoft 365 F1 or F3 licences are appropriate versus full E licences. Frontline workers who primarily use mobile devices for shift management, communications, and basic task completion typically qualify for F-tier licensing — at approximately 40% of E1 cost.

Phase 2: SKU Rationalisation (Control Points 8–14)

SKU over-provisioning — assigning E5 to users who genuinely need only E3, or E3 to users who need only F3 — is the single largest source of Microsoft 365 waste in enterprises above 5,000 seats. The average enterprise assigns E5 to 35–45% of its user population; the appropriate E5 population is typically 15–25%.

• 8. E5 Feature Adoption Analysis Microsoft 365 E5 is justified when users actively consume advanced security (Defender for Endpoint P2, Sentinel), advanced compliance (eDiscovery, communication compliance), and advanced analytics (Viva Insights). Run the Microsoft 365 usage analytics report for E5-specific features. Users with zero consumption of E5-exclusive features are candidates for E3 downgrades.
• 9. E3 vs E1 Bifurcation E3 includes Office applications (desktop installs), advanced compliance features, and Azure AD P1. For users who only consume Exchange, Teams, and SharePoint via browser — with no need for desktop Office or advanced compliance — E1 delivers equivalent functionality at approximately 60% of E3 cost.
• 10. Teams-Only Users Identify users whose primary (or sole) Microsoft 365 activity is Microsoft Teams. If these users do not require email, SharePoint document collaboration, or desktop Office applications, Microsoft Teams Essentials or Teams Phone licences may be appropriate — at a fraction of full E-licence cost.
• 11. Security SKU Consolidation Many organisations purchased standalone Defender for Office 365 P2, Azure AD P2, or Intune licences before bundling them into E5. After E5 adoption, these standalone licences often remain active, creating duplicate coverage. Audit your security licence portfolio for redundancy against E5 entitlements.
• 12. Power Platform and Dynamics Licence Overlap Microsoft 365 E3 and E5 include Power Apps and Power Automate rights for certain use cases. Organisations running standalone Power Apps Per User licences alongside E3/E5 may have redundant coverage. The boundary is specific and requires legal confirmation, but the duplicate spend is real and common.
• 13. Viva Suite Adoption vs Cost Microsoft Viva licences — whether purchased as Viva Suite or individual modules — carry significant per-user costs. Measure active adoption of each Viva module at the 90-day mark. Modules with sub-20% adoption within 6 months of deployment are candidates for non-renewal.
• 14. Microsoft 365 Apps for Enterprise vs Office 365 Apps In some tenants, users are assigned both Microsoft 365 Apps for Enterprise (formerly Office 365 ProPlus) and an M365 suite that includes the same applications. The redundant Apps licence is typically a legacy from a previous EA structure and adds nothing beyond what the suite already provides.

Phase 3: Add-On & Duplicate Coverage Review (Control Points 15–19)

As Microsoft has bundled more capabilities into E3 and E5 over the past three years, many standalone add-on licences that organisations purchased for specific capabilities have been rendered duplicative. This is one of the fastest-growing sources of waste — and one Microsoft has no financial incentive to flag for you.

• 15. Microsoft Intune Standalone vs E5 Entitlement Microsoft 365 E5 includes Microsoft Intune Plan 1. Organisations that purchased Intune standalone licences before migrating to E5 frequently carry both. Check your Intune licence assignments against your E5 population.
• 16. Azure AD P2 Standalone vs E5 Entitlement Microsoft 365 E5 includes Azure Active Directory P2. Standalone Azure AD P2 licences purchased prior to E5 adoption are often left running. At £7–£9 per user per month, these represent meaningful waste at scale.
• 17. Microsoft Defender for Office 365 P2 Standalone E5 includes Defender for Office 365 P2. Organisations that purchased this as a standalone add-on to E3 and subsequently acquired E5 licences for a subset of users may have complex overlapping coverage. Map defender licences against suite licences per user.
• 18. Exchange Online Archiving (EOA) vs In-Place Archive Microsoft 365 E3 and E5 include In-Place Archive capabilities via Exchange Online. Standalone Exchange Online Archiving licences purchased historically may be redundant. Confirm whether EOA is actively being used for functionality not covered by the suite archive capability before renewing.
• 19. Audio Conferencing vs Teams Phone Licence Structure Audio Conferencing is included in Microsoft 365 E5. Organisations on E3 with standalone Audio Conferencing add-ons should model whether a partial migration to E5 for telephony-heavy users would be more cost-effective than maintaining the E3 plus add-on structure.

Phase 4: EA Positioning (Control Points 20–22)

The final phase of the audit translates your findings into commercial positioning for the EA renewal conversation. The output of phases 1–3 is the analytical foundation; this phase is about ensuring those findings are structured to maximise negotiating leverage.

• 20. Establish Your True Minimum Committed Position Based on your audit findings, calculate your minimum defensible seat count and SKU mix. This is your walk-away position in the EA negotiation — the volume you are genuinely committed to, without inflation for perceived relationship risk. Most enterprises inflate their committed position by 10–20% relative to their actual requirements; this inflation is pure cost with no corresponding benefit.
• 21. Model the Blended Cost Scenarios Microsoft EAs are typically structured as uniform per-seat pricing across the user population. Model the blended cost of your optimised SKU mix — the mix that accurately reflects your user population's actual feature needs — and compare it to your current renewal baseline. This delta is your negotiation objective.
• 22. Identify the Leverage Points Before entering the EA renewal conversation, identify your leverage: competing proposals from Google Workspace or Zoho for a defined population; a credible Copilot adoption pilot with measurable ROI data that you can use to negotiate Copilot pricing; or a specific deployment commitment (e.g., Teams Phone rollout) that Microsoft's account team values. Leverage that is not made explicit in the negotiation is leverage that is not used.

Turning Findings Into Negotiating Leverage

Running this checklist is the beginning of the EA negotiation process, not the end. The audit findings have commercial value only if they are presented in a way that Microsoft's account team recognises as a credible, actionable analysis — not as an internal exercise that will be set aside once the renewal conversation starts.

In our Microsoft EA engagements, we structure the audit output as a formal Licence Rationalisation Proposal — a document that presents the current estate, the optimised position, the commercial delta, and the conditions under which we are prepared to commit to the optimised position at renewal. This creates a formal negotiating posture rather than an informal discussion.

The typical outcome of a well-executed M365 audit leading into an EA negotiation is a 12–22% reduction in the Microsoft 365 licence line — representing £400K–£2.2M in savings for a 10,000-seat enterprise over the three-year EA term.

For organisations approaching their EA anniversary within the next 6 months, the time to begin this process is now. The 90-day runway before the anniversary is the minimum required to complete the audit, model scenarios, and enter the negotiation with sufficient lead time to walk away if Microsoft's initial position is not acceptable.

Related reading: Microsoft EA Negotiation Guide 2026, Avoiding Microsoft True-Up Surprises, and How to Reduce Microsoft Spend Without Losing Functionality.