A step up converts a paid subscription from a lower SKU to a higher one without forfeiting the price anchor you negotiated for the base. When the mechanic is used correctly, the higher SKU lands at a meaningful discount to direct purchase. When it is missed, the buyer ends up paying full new SKU pricing on what should have been a continuation of the original concession. Most enterprises that move from E3 to E5 mid term lose the original discount band because nobody asked for the step up structure in writing.
A step up SKU is a deliberately discounted upgrade path. Microsoft offers step ups so the buyer can move from E3 to E5, from F1 to F3, or from Office 365 to Microsoft 365 without rewriting the contract or restarting the discount conversation. The mechanic is the only structural way to move up the stack without losing the original anchor.
The step up SKU is priced as the delta between the lower SKU and the higher SKU, plus an explicit step up margin. The result is materially lower than buying the higher SKU directly.
Step ups are not universally available. They are defined for specific SKU transitions where Microsoft wants to encourage the buyer to move up rather than churn down.
The step up SKU is available only if it is requested and explicitly contracted. Microsoft sales has no obligation to surface it. The buyer must, and the buyer often does not.
The buyer decides to move from E3 to E5 mid term. Microsoft sales generates a quote for the E5 SKU at the current direct price. The buyer accepts. The original E3 discount band is left on the table.
The buyer expands E5 entitlement during the annual true up. The true up line is processed at the current new SKU rate rather than at the step up rate, because step ups have to be explicitly added to the order.
The buyer waits until renewal to move from E3 to E5. The new EA quote prices E5 from scratch. The step up mechanic only carries the anchor when applied mid term, not at renewal. The renewal becomes a clean sheet pricing exercise.
The step up structure belongs in the original EA, not at the moment of need. When the contract anticipates the step up, the buyer can move when ready without renegotiating the base.
The EA can include pre approved step up SKUs at a contracted delta, with explicit pricing locked for the contract term. The buyer can execute against those step ups by order at any point without further negotiation.
Microsoft will accept this when it is bundled into the original commit conversation. They will resist it when raised at the eleventh hour because internal compensation has already been calculated against the base SKUs only.
Most enterprises do not need to step up the whole estate. The cleanest structure steps up a defined population, the security and compliance population for E5, while leaving the balance on E3. The step up SKU applies to the moved population only and the base SKU continues for the remainder.
This preserves the discount band on the base while capturing the upgrade economics on the moved subset. The audit posture must reflect the split count, which is straightforward to maintain in Entra ID assignment groups.
The step up mechanic is straightforward once the components are isolated. The worked example below illustrates the difference between buying a higher SKU directly and stepping up from the existing base. The numbers vary by enrollment but the structural pattern reproduces across estates.
A buyer with three thousand E3 users decides to move five hundred to E5 in year two of the EA. Microsoft sales generates a quote for the new E5 SKU at the current new buy discount. The five hundred E5 users land at full new SKU pricing and the original E3 discount band on the moved users is forfeit.
The five hundred E5 users are priced as if they had never been part of the EA. The compound exposure across the remaining term is meaningful because the discount band on the base contract was negotiated against the full three thousand seat count and the five hundred removed seats no longer benefit from that anchor.
The same buyer executes a contracted step up SKU on the five hundred users. The E3 base price continues to apply. The step up delta is priced at the contracted discount and added to the existing line. The five hundred users move to E5 economics without breaking the discount band on the rest of the estate.
The mechanic is only available if the step up SKU was negotiated at the original EA signature. The clause we negotiate routinely covers E3 to E5, F1 to F3, Office 365 to Microsoft 365, Defender Plan 1 to Plan 2, and Power BI Pro to Premium per user paths at contractually set deltas locked for the term.
The step up SKU only protects the discount anchor when it is contracted up front. We work with clients to negotiate pre approved step up paths into the EA so the upgrade decision later is operational, not contractual.