Hidden Costs in Microsoft Licensing Deals
Introduction – The Hidden Cost Problem
Negotiating a great discount on a Microsoft contract feels like a win – until hidden costs sneak up and undo those savings. Microsoft’s licensing agreements are notoriously complex, with pitfalls that create budget surprises.
These are the hidden fees in Microsoft contracts that aren’t obvious at signing but can hit your IT budget later. Even a well-negotiated deal can be undermined by true-up charges, unused licenses, or other “gotchas” that quietly inflate your spend.
If you manage Microsoft licenses as a CIO, CFO, or IT procurement lead, identifying these hidden costs is crucial. Read our complete guide to Microsoft Pricing & Discounts.
In this article, we’ll expose the common hidden costs in Microsoft licensing deals and explain how to avoid extra Microsoft licensing costs through smart planning.
From surprise true-up bills to auto-renewal traps, we highlight six major cost risks and provide tactics to prevent overspending. The goal is to help you enjoy the benefits of your Microsoft deal without the nasty budget surprises.
Hidden Cost #1: True-Up Surprises
One big gotcha is the annual true-up – when you true-up your license counts, Microsoft bills you for any usage growth over the year.
This often results in an unexpected invoice, especially if your user count has grown unchecked or you have added software without tracking it. Many organizations underestimate Microsoft true-up cost risks, only to get a shock at year-end.
For example, if you hired 50 extra employees and gave them Microsoft 365 accounts mid-year, the true-up will charge for those 50 licenses as if you had them all year. Unmonitored growth and poor internal tracking are usually the culprits behind these surprise bills.
To avoid unexpected license costs, implement proactive license management. Audit usage quarterly – don’t wait until year-end to discover you’ve been over-using.
By running regular self-audits, you can catch any license count increases early.
If you find unused or duplicate licenses during these check-ups, reclaim them or reassign them before they inflate your true-up. It’s also wise to forecast and budget for expected growth.
Some companies even negotiate predictable growth terms in their contract (for instance, agreeing on a set increase in users each year at a fixed rate).
The more visibility and control you have over your license usage, the less likely you’ll be blindsided by a giant true-up bill.
Hidden Cost #2: Shelfware (Unused Licenses)
“Shelfware” refers to licenses you’ve paid for but aren’t actually using – they sit on the shelf.
This happens when companies overbuy licenses or fail to remove licenses after employees leave. It’s especially common after layoffs, mergers, or overestimates of growth.
Because Microsoft enterprise agreements often lock you in for a term, you might be stuck paying for 500 licenses even if your active headcount drops to 450.
Those 50 unused licenses silently drain the budget with no return, sometimes for years, until renewal. Shelfware is basically money paid for nothing.
To combat shelfware, make license cleanup a regular activity. Conduct periodic license audits to identify unused or under-utilized licenses.
For example, if certain Office 365 accounts haven’t been logged into for months, consider reallocating or canceling them.
When you reach a contract renewal, always true-down – meaning reduce your license count to match actual usage rather than just renewing the same number you originally purchased.
Microsoft allows reduction at renewal time, so take that opportunity to eliminate the shelfware from your agreement.
Additionally, consider using more flexible licensing models for uncertain needs. Cloud Solution Provider (CSP) subscriptions or other short-term licenses can be scaled down on a month-to-month basis.
For instance, if you have seasonal staff or a project team that only needs licenses for a few months, CSP licenses let you drop those users when they’re done, avoiding leftover licenses that turn into shelfware.
Hidden Cost #3: Premium SKU Over-allocation
Not everyone in your organization needs the top-shelf Microsoft license, but it’s easy to overspend by giving everyone a premium SKU by default.
A classic example is Microsoft 365 E5 – a feature-packed (and expensive) license. If a company assigns E5 to all employees “just in case” they need advanced features, the cost multiplies dramatically.
An E5 license can cost almost 50–70% more than an E3 license. Multiply that difference across hundreds or thousands of users who don’t actually use the E5-only features, and you’re looking at a huge chunk of unnecessary spend.
In other words, blanket assignment of premium SKUs means you’re paying for advanced security, voice, analytics, or compliance tools that a lot of users may never touch.
The remedy is right-sizing licenses based on role. Instead of one-size-fits-all, profile your users by their job function or software needs.
For instance, your finance team might only need an E3 license for Office apps and email, whereas a data analyst or security officer might truly benefit from E5’s advanced tools.
Many frontline or support staff could even use an F3 (formerly F1) license at a fraction of the cost. By matching SKUs to user roles, you allocate premium licenses only to those who need them.
It’s wise to periodically review who has which license and downgrade users who aren’t using the high-end features.
This approach ensures you’re not overspending on Microsoft’s top-tier packages where a lower-tier would suffice, keeping your licensing costs in check.
Insights into negotiations, Negotiating Multi-Year Pricing with Microsoft: Step-Up Discounts Explained.
Hidden Cost #4: Auto-Renew & Evergreen Spend
Microsoft and its partners often make it very easy for your subscriptions to simply continue indefinitely – this is the auto-renewal trap. For example, cloud subscription programs like CSP or the Microsoft Customer Agreement will auto-renew your services without requiring fresh approval each year.
If you’re not actively managing it, you can end up with evergreen spend that grows year over year. The danger is that pricing can change at renewal.
Perhaps a discount you had initially is gone, or Microsoft raised the rates for certain products – but if everything auto-renews, you might not even notice until after you’ve been charged. Additionally, auto-renewal means you might continue paying for products you no longer need simply because no one opted out in time.
Avoiding this hidden cost requires vigilance around contract anniversaries.
Track all renewal dates in a calendar and set alerts well in advance. Treat each renewal as a chance to shop around or renegotiate, not just a rubber stamp.
When you receive a renewal notice or quote, review it carefully against your current usage and pricing to ensure accuracy. Don’t assume the new terms are the same – verify the prices and see if you still require all the services at the levels listed.
It’s also a good practice to negotiate a requirement for advance notice. If possible, include a clause in your contract or agreements with resellers that they must notify you 60-90 days before an auto-renewal, giving you a window to make changes. In short, never let a Microsoft agreement renew passively. By actively intervening at renewal time, you can avoid paying higher rates or for unwanted services.
Hidden Cost #5: Support & Maintenance Overlap
Support and maintenance costs can quietly overlap when you transition from old licenses to new, leading to double payments.
A common scenario is continuing to pay for Software Assurance (SA) on on-premises products that you’ve migrated to the cloud. SA is a yearly fee (approximately 25% of the license price) that provides upgrades and support for perpetual licenses.
But if, say, you moved from Exchange Server (on-prem with SA) to Exchange Online in Microsoft 365, you might still be paying SA on that old server license even though you no longer need it.
Similarly, many organizations pay for Microsoft’s Unified Support plans (formerly Premier Support) based on a percentage of their license spending.
If you’re not using all those support hours or if your cloud subscriptions already include some support, you could be overspending on support coverage you don’t utilize.
The key is to audit your support and maintenance spend for redundancy. Make a habit of reviewing what you’re paying for support (like Unified Support or Premier) and what value you actually get. If your ticket volume is low, you might downgrade to a less expensive support tier or a pay-per-incident model.
For Software Assurance, identify any on-premises licenses with SA that have become redundant.
You might decide not to renew SA on products you’ve fully moved to the cloud, or explore if Microsoft offers transition SKUs or credits. (Microsoft sometimes provides discounts on cloud subscriptions if you have SA – take advantage of those instead of paying full price twice.)
The goal is to drop or reduce overlapping coverage. Don’t pay for two support plans covering the same product, and don’t pay maintenance on licenses that are effectively retired. Streamlining your support and maintenance in line with actual usage will eliminate this hidden cost.
Check out our tool, Microsoft Pricing Negotiation Cheat Sheet: 10 Quick Tips.
Hidden Cost #6: Currency & Exchange Rate Fluctuations
Global companies need to watch out for currency-related cost surprises in Microsoft deals. Microsoft periodically does price adjustments or “global price alignment” across regions.
This can mean that if you’re paying in a local currency (anything other than USD), your prices could increase mid-term due to exchange rate shifts or regional pricing updates.
For example, if the Euro or British Pound weakens significantly against the dollar, Microsoft might raise the Euro or GBP prices of Microsoft 365 to compensate, even during your agreement term.
The result? You suddenly pay more in your currency for the same licenses. Similarly, if your contract doesn’t fix pricing for multi-year terms, general inflation or exchange rates could drive up your costs each year.
These FX fluctuations are hidden costs that can catch you off guard, because they’re outside your direct control yet impact your IT budget.
To avoid nasty surprises from currency movements, try to negotiate protections upfront. If you’re signing a multi-year deal, see if you can get a price cap or lock-in that covers currency changes for instance, a clause that limits price increases to a certain percentage per year (including any “currency alignment” adjustments).
In some cases, companies choose to pay in USD or another stable currency for their Microsoft agreements if that option is available, thereby assuming the exchange risk themselves but avoiding unpredictable vendor price adjustments.
Another tactic, if your organization spans multiple regions, is to leverage a global agreement. By consolidating purchasing under one global contract, you might smooth out regional pricing differences and have more say in terms of.
Microsoft typically announces regional price changes in advance. If you hear that “prices will rise 10% in EMEA next quarter,” you can try to renew early or extend your current terms before that hit. In short, plan for FX and inflation in your budgeting.
Negotiating and strategizing around currency can help prevent unexpected exchange rate swings from inflating your Microsoft licensing costs.
Table – Common Hidden Costs & Avoidance Tactics
| Hidden Cost | Why It Happens (Pitfall) | How to Avoid It (Tactic) |
|---|---|---|
| True-Up Surprises | Usage growth unchecked; annual true-up bills for full year of additions | Do quarterly usage audits; reclaim excess licenses; negotiate predictable growth terms in contract |
| Shelfware (Unused Licenses) | Overbuying licenses; workforce reductions leave extras unused | Reclaim or reassign unused licenses promptly; “true-down” to lower counts at renewal; use short-term licenses for temporary needs |
| Premium SKU Over-allocation | Blanket assignment of E5 (premium) to all users by default | Right-size licenses by role/need; assign lower-tier (E3/F3) to those not using premium features; review and downgrade where appropriate |
| Auto-Renew & Evergreen Spend | Contracts renew automatically without scrutiny; discounts expire unnoticed | Track renewal dates with reminders; require advance renewal notices; always review new quotes and renegotiate instead of auto-renewing |
| Support & Maintenance Overlap | Paying for support or SA on unused/old products; dual coverage for same service | Audit support contracts vs. usage; drop or reduce support levels if underutilized; discontinue SA on retired systems or use transition credits for cloud upgrades |
| Currency/FX Fluctuations | Mid-term price “alignments” by Microsoft; local currency weakness leads to higher costs | Negotiate price caps or multi-year rate locks; consider consolidating contracts in USD or single currency; stay alert to MS price change announcements to adjust strategy |
Checklist – Protecting Against Hidden Costs
- ✓ Audit usage quarterly. (Regular internal checks to catch growth or unused licenses early.)
- ✓ Reclaim unused licenses. (Remove or reassign accounts that aren’t in use to avoid paying for shelfware.)
- ✓ Match SKUs to user roles. (Allocate premium licenses only to users who need them; give others cheaper SKUs.)
- ✓ Track renewal dates. (Keep a calendar of Microsoft contract renewals and set reminders to review them.)
- ✓ Revisit support & SA annually. (Review support plans and Software Assurance each year to eliminate overlaps or downgrade if appropriate.)
- ✓ Cap FX and inflationary uplifts. (Where possible, negotiate limits on yearly price increases and currency adjustments in your agreements.)
FAQs
Q: Can hidden costs be negotiated away up front?
A: You can address some hidden costs upfront, but not all. It’s wise to discuss these potential pitfalls during negotiations – for example, asking for price protections (caps on increases) or flexible true-up terms (such as proration for partial-year use). You might also negotiate the ability to reduce license counts at renewal or get credits for transitioning to cloud services. While you can’t eliminate every hidden cost in the contract, negotiating transparency and flexibility in key areas will significantly reduce surprise fees later on.
Q: Do CSP agreements carry the same risks as an EA (Enterprise Agreement)?
A: CSP (Cloud Solution Provider) agreements are more flexible in some ways, but they have their own risks. The good news is CSP is pay-as-you-go monthly so that you won’t get an annual true-up bill – you can adjust licenses month to month, which helps avoid shelfware. However, CSP pricing isn’t fixed long-term; Microsoft can change subscription prices, and those changes will hit your monthly bill. CSP subscriptions also often auto-renew indefinitely until you cancel, so the auto-renewal risk is still there. In short, a CSP can reduce true-up surprises and let you scale down unused licenses faster, but you still need to watch for price increases and manage renewals actively.
Q: How do we check if we’re overpaying for SKUs?
A: Start by analyzing your license usage. Look at the features and services your users actually use versus the licenses they have. For instance, if you gave someone an E5 license, are they utilizing any E5-exclusive features, such as advanced security, analytics, or a phone system? If not, that user could likely be on E3 or a cheaper plan. Microsoft’s admin portals provide usage reports – use those to see adoption of various features (e.g., how many users actually use Power BI, Audio Conferencing, etc., which are E5 features). You can also perform a licensing review or use a Software Asset Management (SAM) tool to flag users who have an oversized license. By identifying those cases, you can downgrade licenses and avoid extra Microsoft licensing costs that come from over-allocation.
Q: Can we negotiate FX protections globally?
A: Yes, if you have significant spending or a multi-national agreement, you have some leverage to negotiate protections against currency fluctuations. Microsoft won’t always offer it outright, but large customers have negotiated clauses to cap year-over-year price increases or to lock pricing in a base currency. Another approach is negotiating your enterprise deal in a single currency (like USD) for all regions – this puts the FX management on your side but can shield you from Microsoft’s periodic “price alignment” increases. Always raise the question of currency and inflation adjustments during negotiations. If you operate in regions with volatile currency, explicitly seek a term that limits mid-term price changes. It may not be given automatically; you must request it.
Q: Are true-ups always mandatory?
A: In a traditional Enterprise Agreement, yes – true-ups are a contractual requirement. If you added licenses or users beyond your initial count, you must report and pay for them at the annual true-up. That said, you can sometimes negotiate how the true-up is calculated. For example, you might negotiate a provision for prorated charges (so you don’t pay a full year for licenses added late in the year) or a brief grace period for transient use. But unless such exceptions are written in, the default is that every increase is billable at true-up time. In subscription models like CSP, the concept of an annual true-up doesn’t apply since you’re paying monthly for active licenses. For EAs, though, assume that true-ups are mandatory and plan accordingly by monitoring your usage throughout the year.
Five Expert Recommendations
- Treat hidden costs as part of the negotiation, not an afterthought. Always bring up potential “gotcha” areas (true-ups, price hikes, etc.) when discussing terms with Microsoft, rather than reacting to them later.
- Demand transparency in pricing mechanics and true-up terms. Push Microsoft to spell out how and when costs can change. No vague clauses – ensure you understand the triggers for extra charges.
- Build governance processes to prevent shelfware and over-allocation. Internally, have a process (and team ownership) for regular license reviews, reclamation of unused licenses, and rightsizing of license tiers before it costs you.
- Protect against auto-renewal traps with contractual notice clauses. When possible, include terms that require Microsoft or your reseller to give you a heads-up before renewal or price changes. This gives you a chance to opt out or renegotiate instead of being stuck automatically.
- Always plan for FX and inflation risks in multi-year contracts. Budget for potential increases and negotiate caps or reviews. Don’t assume year-3 prices will be the same as year-1 – build in those safeguards so your great deal stays great.
By staying alert to these hidden costs and following the avoidance tactics above, you can make your Microsoft licensing deal as cost-effective and surprise-free as possible. Happy negotiating!
Read about our Microsoft Negotiation Services
Do you want to speak with us about our Microsoft Services?
