How to read your monthly Microsoft 365 bill (and find the licenses you don't need)

Microsoft 365 is one of the most common auto-pay charges in a small business. Most owners have a rough idea what it costs and no idea what they are actually paying for. The bill shows up, the credit card is charged, and life moves on. The problem is that Microsoft 365 licensing is complicated enough that unnecessary charges accumulate over time and the bill drifts upward in ways that are easy to miss when you are not looking line by line.

Here is how I read one of these bills with a new client, and what we typically find.

First: what the major license types actually mean in plain English

Microsoft offers an alphabet soup of SKUs. Here is what the common ones include.

Microsoft 365 Business Basic ($6 per user per month): Web-only access to Office apps (Word, Excel, PowerPoint in a browser), Exchange email with a 50GB mailbox, Teams, SharePoint, and 1TB of OneDrive. No desktop Office apps. This is the right tier for users who live in a browser and do not need to install software on their machines.

Microsoft 365 Business Standard ($12.50 per user per month): Everything in Basic, plus the desktop versions of Office apps (Outlook, Word, Excel, PowerPoint installed on up to five devices), plus Bookings and webinar hosting. This is what most knowledge workers actually need.

Microsoft 365 Business Premium ($22 per user per month): Everything in Standard, plus Microsoft Intune for device management, Microsoft Defender for Business (endpoint protection), and Azure Active Directory P1 features like conditional access policies. This tier makes sense if your IT provider is managing your devices with Intune or if you need serious security controls. It is not the right default for every user in a small office.

Microsoft 365 E3 and E5: Enterprise tiers. Most small businesses should not be on these. If you are paying E3 or E5 prices and you are under 50 people without a compliance requirement that mandates it, somebody made a sale they should not have made.

Exchange Online Plan 1 ($4 per user per month) and Plan 2 ($8 per user per month): Standalone email-only licenses. Plan 2 adds unlimited archiving storage. These sometimes appear as add-ons on top of other licenses when someone wanted an extra feature without buying the full next tier.

Microsoft 365 Apps for Business ($8.25 per user per month): Desktop Office apps plus OneDrive, but no email. Sometimes assigned to users on a separate email platform who still need Word and Excel on their machines.

What the waste patterns look like

Now that you know what you are paying for, here is what I find when I look at the line items alongside the actual user list.

Licensed ex-employees. This is the single most common source of unnecessary spend. Someone leaves the company, IT (or whoever manages licenses) removes them from Active Directory but forgets to remove the Microsoft 365 license. The license keeps billing. A 25-person company with 10 percent annual turnover can easily have two or three orphaned licenses that have been billing for a year or more. At $12.50 each, that is $450 a year in noise at minimum.

Premium features that nobody turned on. Business Premium costs $22 per user, which is $9.50 more per user per month than Standard. The reason to pay that premium is Intune and Defender for Business. If your IT provider set up Business Premium for your team but never configured Intune enrollment or deployed Defender, you are paying the premium price for standard-tier features. Ask your IT provider: are we actually using Intune? Is Defender actively monitoring our machines? If the answer to both is no, you are probably on the wrong tier.

Duplicate add-ons. Audio Conferencing ($4 per user per month) is a common one. It provides dial-in phone numbers for Teams meetings. Most businesses do not need it because Teams meetings with video and internet audio work fine without it. It gets added to a license and forgotten. Microsoft Phone System and Teams Phone licenses are another: if you switched your phone system away from Teams Calling two years ago and nobody removed the add-ons, that money has been going nowhere.

Annual commitment versus monthly billing. Microsoft’s annual commitment (billed monthly) is roughly 20 percent cheaper than month-to-month. If you are paying month-to-month for licenses that have been stable for two years, you are paying a premium for flexibility you are not using. The billing page will tell you the commitment term for each product. Look at it.

Exchange Online Archiving add-ons for users who do not need them. Some tenants have Exchange Online Archiving ($3 per user per month) assigned to users whose mailboxes are not remotely close to full. The archiving tier makes sense for heavy email users approaching storage limits. It does not make sense as a default assigned to everyone.

How to audit this yourself

The Microsoft 365 Admin Center makes this straightforward.

Start at Billing > Licenses. This shows every product you are paying for and how many licenses are assigned versus how many you purchased. If you have 25 users on Business Premium and 30 licenses, you are paying for five unused seats.

Then go to Users > Active Users. Sort by “Last signed in.” Microsoft shows the date each user last signed into any Microsoft 365 service. Users who have not signed in for 90 days or more are either gone or they have licenses they are not using. Cross-reference these against your actual employee list. Anyone in the admin center who is no longer an employee should have their account disabled and their license removed immediately, both for cost and for security.

For a deeper look at actual usage, go to Reports > Usage. The Microsoft 365 Apps usage report shows which users are actively using which applications. If you have ten people on Business Standard but only two of them have opened a desktop Office app in the last 30 days, eight of them might be fine on Business Basic at $6 instead of $12.50.

What rightsizing typically recovers

The pattern we see in Anchorage businesses in the 15 to 50-person range is that 15 to 25 percent of Microsoft 365 spend is recoverable through straightforward rightsizing. Most of that comes from orphaned licenses, wrong tiers, and forgotten add-ons. The conversation usually happens during a quarterly business review and takes about an hour. The savings are often enough to partially offset the cost of managed IT services, which is not the reason to do it, but it is a real outcome.

This is one area where the incentives at most MSPs are misaligned. Resellers earn a margin on every Microsoft license they manage. Rightsizing a client’s tenant reduces that margin. We do not make our money that way, which means we can give you an honest read on what you actually need.

The free IT Health Check we offer includes a Microsoft 365 billing audit. Bring access to the admin center and we will walk through it with you. You will leave knowing exactly what you are paying for, what you are not using, and what your monthly number should actually be. The full scope of what we cover is at the Microsoft 365 services page. Whether you hire us to manage it ongoing is a separate conversation.