How to Optimize Your Microsoft 365 Licensing Costs: A Practical Guide

Introduction

Microsoft 365 licensing is one of the largest recurring IT expenses for most organizations—and one of the most commonly overspent. Between plan tiers, add-ons, and the sheer pace of employee turnover, it's easy to end up paying for licenses nobody is using or assigning premium plans to users who only need email.

The problem compounds quietly. A departing employee whose license isn't reclaimed. A department that requested E5 licenses "just in case" but only uses Outlook and Teams. A dozen service accounts sitting on full Business Premium licenses when a shared mailbox would do.

In our experience providing IT support and managing M365 tenants for small and mid-sized businesses, most organizations are overspending on licensing by 20–35%. That's real money—for a 100-person company on E3, that could mean $30,000 or more per year going to waste.

This guide walks through a practical, step-by-step approach to auditing and optimizing your M365 licensing using tools you already have.

Understanding the M365 License Landscape

Before you can optimize, you need to understand what you're working with. Microsoft 365 offers a dizzying number of plans, and pricing changes frequently.

Common Business Plans

Common Enterprise Plans

The price differences add up fast. Moving one user from E5 ($57) to E3 ($36) saves $252 per year. Moving ten users saves $2,520. And in many tenants, there are far more than ten users on the wrong plan.

Step 1: Audit Your Current License Assignments

Start by getting a clear picture of what you have. In the Microsoft 365 Admin Center, navigate to Billing > Licenses to see a summary of all purchased licenses and how many are assigned versus available.

Export your full user list with license assignments:

1. Go to Microsoft 365 Admin Center > Users > Active users
2. Click Export users to download a CSV
3. Sort and filter by license type

What you're looking for at this stage:

• Unassigned licenses — You're paying for them but nobody is using them
• Users with multiple overlapping licenses — Common after migrations or plan changes
• Shared/resource accounts on full licenses — Conference rooms, shared mailboxes, or service accounts that don't need premium plans
• Departed employees still holding licenses — Especially common when offboarding processes are informal

Step 2: Identify and Convert Shared Mailboxes

This is consistently the single biggest cost-saving opportunity we find in M365 audits. Many organizations assign full user licenses to mailboxes that function as shared resources—info@, sales@, support@, accounting@, or mailboxes retained for former employees.

The Shared Mailbox Advantage

A shared mailbox in Microsoft 365 is free (up to 50GB) and doesn't require a license. Multiple users can send and receive from it without consuming an additional seat. The only requirement is that the users accessing it have their own licensed accounts.

Real-World Example: Reclaiming 14 Licenses

We recently audited a 65-person professional services firm running Microsoft 365 Business Premium ($22/user/month). Here's what we found:

Total savings: 14 licenses x $22/month = $308/month = $3,696/year

That's a meaningful number recovered by a single afternoon's work.

How to Convert a User Mailbox to a Shared Mailbox

The conversion process preserves all email, contacts, and calendar data:

1. Go to Microsoft 365 Admin Center > Users > Active users
2. Select the user you want to convert
3. Under the Mail tab, click Convert to shared mailbox
4. Once converted, remove the license from the account
5. Grant Full Access and/or Send As permissions to the appropriate users

Important caveats:

• The mailbox must be under 50GB (or you need to keep an Exchange Online Plan 2 license for the 100GB limit)
• OneDrive data is deleted 30 days after the license is removed—archive it first
• Shared mailboxes cannot sign in directly, so any apps or services authenticating as that user will break

Step 3: Use M365 Usage Reports to Right-Size Licenses

Microsoft provides built-in usage reports that reveal exactly how each user interacts with their licensed services. This is your primary tool for identifying users who are over-licensed.

Accessing Usage Reports

Navigate to Microsoft 365 Admin Center > Reports > Usage. The key reports for license optimization are:

• Microsoft 365 activation — Shows which users have activated desktop apps vs. only using web versions
• Active users by service — Shows per-user activity across Exchange, Teams, SharePoint, OneDrive, and Office apps
• Email activity — Send/receive counts per user
• Office apps usage — Which apps each user actually opens and on what platform

What to Look For

Building a Right-Sizing Spreadsheet

Export the usage data and build a simple decision matrix:

In this small sample of six users, the potential monthly savings are $91—or $1,092/year. Scale that across an organization of 100+ users and the impact is substantial.

Step 4: Use Intune Device Inventory for License Decisions

If your organization uses Microsoft Intune (included in Business Premium, M365 E3, and E5), you have a powerful data source for license decisions that most IT teams overlook.

Why Device Data Matters

The license a user needs often depends on how and where they work:

• A user with a company-managed laptop and phone likely needs Business Premium or E3 for full Intune management
• A user who only accesses M365 from a personal browser may not need device management features at all
• A user with an older desktop that never leaves the office has different needs than a remote worker with multiple devices

Pulling Intune Inventory Data

In the Microsoft Intune Admin Center (intune.microsoft.com):

1. Navigate to Devices > All devices
2. Export the device list to CSV
3. Cross-reference with your license assignment spreadsheet

Key Intune Data Points for License Decisions

Device-to-License Mapping Strategy

Step 5: Build an Ongoing Optimization Process

One-time audits help, but licensing drift happens continuously. New hires get assigned whatever license is convenient. Employees change roles. Departures slip through the cracks. Without a recurring process, you'll be back to overspending within six months.

Monthly License Review Checklist

• Review the Billing > Licenses page for unassigned licenses
• Check for users with zero activity in the past 30 days
• Verify all departed employees have been offboarded (HR list vs. active users)
• Review any new license purchases against actual needs

Quarterly Deep Review

• Pull fresh usage reports and compare against license tiers
• Cross-reference Intune device inventory with license assignments
• Check for duplicate or overlapping licenses on individual users
• Review any licenses approaching renewal and evaluate alternatives

Automation Opportunities

• Azure AD Access Reviews — Automatically prompt managers to confirm whether users still need access (this integrates well with cloud management processes)
• Power Automate flows — Alert IT when a user shows zero activity for 30+ days
• License assignment groups — Use Azure AD groups to assign licenses by role or department, reducing manual errors

Quick Reference: Common Optimization Wins

What This Looks Like in Practice

For a typical 100-person organization on a mix of M365 E3 and E5, a thorough optimization usually yields:

That's $8,400–$27,120 per year in licensing costs alone for a 100-person company—without reducing any user's actual capabilities.

Conclusion

M365 license optimization isn't a one-time project—it's an ongoing discipline. But the initial audit almost always pays for itself immediately, and the recurring process takes minimal effort once established.

The key tools are already in your tenant: usage reports tell you what people actually use, Intune inventory tells you how they work, and the admin center gives you the controls to make changes. The missing ingredient for most organizations is simply taking the time to look.

Start with the low-hanging fruit: shared mailbox conversions and inactive account cleanup. Then move to right-sizing based on usage data. Finally, put a recurring review cadence in place so the savings stick.

Need help auditing your Microsoft 365 licensing? Asher Technologies helps Calgary businesses optimize their M365 tenants, reduce unnecessary spending, and build sustainable IT management processes. Contact us for a free licensing assessment.