Managing Microsoft Licenses Mid-Term
Managing Microsoft licenses mid-term can be challenging, but it’s crucial for keeping costs in check and aligning your software spend with actual needs.
Microsoft agreements often span 3 years, and a lot can change in that time. Instead of simply locking in everything at signing and hoping for the best, savvy IT procurement managers and CIOs know to actively manage licenses mid-term.
This involves seeking flexibility through the co-termination of contracts, negotiating true-down rights, planning ramp-ups, and maintaining strict governance throughout the term. The goal is to avoid overspending on unused licenses (shelfware) and adapt to business changes as they happen, not just at renewal.
In this guide, we’ll explore why mid-term flexibility matters and dive into strategies like co-terming agreements, true-down provisions, ramp-up plans, and other tactics.
The tone here is buyer-first and maybe a bit skeptical of Microsoft’s default terms – after all, Microsoft’s standard approach often favors locking you in.
We’ll focus on practical guidance to help you navigate mid-term adjustments with confidence and get the most value out of your Microsoft licensing agreements.
Why Mid-Term License Flexibility Matters
Business needs change frequently:
Over a 3-year agreement, your organization might expand, contract, acquire another company, or divest a division. You could hire new teams or cut back on staff. If you move into new markets or launch projects, you may need additional software licenses; if projects get canceled or operations shrink, you might have more licenses than you use. In short, the only constant is change – and your license entitlements need to keep up.
Without flexibility, you overspend or accumulate shelfware:
If your contract doesn’t allow adjustments, you could end up paying for far more licenses than you need. Unused licenses (a.k.a. shelfware) are essentially wasted budget. For example, if you signed up for 5,000 seats expecting growth but later stabilized at 4,500 employees, those extra 500 licenses sit idle while you’re still footing the bill. Over a couple of years, that waste adds up. Mid-term flexibility lets you dial things down so you’re not throwing money away on unused capacity.
Microsoft’s default terms favor “no reductions”:
Microsoft Enterprise Agreements (EA) typically make it easy to add licenses (true-up) but very hard to reduce licenses before the term ends. The default stance is a one-way ratchet: you can go up but not down. This means that, without special provisions, customers are locked into their initial committed quantities (or higher, if they have added more) until renewal. Given this reality, strong internal governance and proactive planning are critical. If you simply “set and forget” your licenses, you risk costly surprises by mid-term.
In summary, mid-term license flexibility is about aligning your licensing with actual usage and business reality throughout the contract’s life, not just at the start or end.
The following sections explore key strategies to achieve this flexibility.
Co-Termination of Microsoft Agreements
Co-termination (or “co-terming”) is the practice of aligning multiple license agreements or subscriptions so that they share the same end date.
Instead of having one product renew in April, another in September, and another next year, you synchronize them to co-terminate on a single date (often your Enterprise Agreement anniversary).
This strategy is all about simplicity and leverage.
- What is Co-Termination? It means adjusting various Microsoft license purchases or contracts to end together. For instance, if you add a new set of licenses mid-way through your EA, you negotiate for that add-on to expire on the same date as your main agreement (even if it means a shorter initial term for those new licenses). Co-terming can also apply when you have separate agreements – say, an EA for Office 365 and a separate Dynamics 365 subscription – you aim to align their renewal dates.
- Benefits of co-terming: First, it simplifies the renewal process. You have one big renewal event to manage, rather than a dozen small ones scattered through the year. This means a lower chance of missing an expiration or scrambling to renew something at the last minute. Second, a single renewal date increases your negotiation leverage. All your spend is on the table at once, which makes Microsoft eager to strike a deal – you’re effectively a bigger customer when combining agreements. This can lead to better discounts or concessions since Microsoft knows you could move a large chunk of business elsewhere if unhappy. Finally, co-termination enables a synchronized true-up cycle. Instead of juggling different anniversary dates for true-ups (adding licenses) or any allowed reductions, you handle them in one consolidated process, which is easier for tracking and compliance.
- Risks if ignored: If you don’t co-term, you face fragmented expirations. It’s easy to overlook a smaller contract and accidentally let it auto-renew or lapse, either of which can be problematic (auto-renew might lock you in undesirably; lapse might mean users lose service). Fragmentation also means you never have your full purchasing volume available to leverage at once, so you might miss out on volume discounts. Microsoft’s sales teams can treat each renewal separately, and you lose the “big picture” advantage. In short, a scattered renewal timeline keeps you on the back foot, always negotiating smaller deals with less bargaining power.
- Negotiation tip: Proactively request co-terming when you make mid-term changes. Don’t wait until a new purchase runs its own full term on a different schedule. For example, if you acquire a company and need to bring them onto your Microsoft 365 tenant, talk to Microsoft about co-terming those new licenses to your current EA end date. Microsoft can prorate costs so the new licenses renew with your main agreement. Similarly, if you’re adding a new product SKU mid-year, ask to align its end date with your existing agreement anniversary. It might take a bit of extra paperwork, but it’s worth it. This way, everything ends together, and you can negotiate all parts as a package when renewal time comes. Co-terming may require some effort to coordinate, but it pays off in a smoother and more powerful renewal process.
True-Down Rights and Reductions
Microsoft’s licensing model has long favored growth (true-ups) over reduction.
A true-up is the well-known process of adding licenses: if you deploy more software or onboard more users during the year, you report those additions at the anniversary and pay for them.
But what if you need to go in reverse? That’s where true-down rights come in – the ability to reduce license counts mid-term.
- What is a “true-down”? It’s the right to decrease your license quantity (usually at an annual checkpoint) to reflect lower usage. For example, if you had 1,000 licenses and your workforce dropped to 900, a true-down would let you adjust next year’s billing to 900 licenses instead of 1,000. Essentially, you stop paying for the 100 that are no longer needed.
- Standard EA vs. Subscription agreements: In a classic Microsoft Enterprise Agreement (EA) with perpetual licenses, true-downs are not allowed mid-term. Once you commit to 1,000 licenses, you’ll be paying for at least that many every year until the EA ends (you can only reduce at the very end, when deciding renewal quantities). This rigidity can lead to paying for shelfware if your needs drop. However, Microsoft offers an alternative contract called the Enterprise Subscription Agreement (EAS), which does allow annual adjustments both up and down. In an EAS, you’re essentially renting licenses year by year rather than owning them. The big advantage is that at each anniversary, you can true-down – say you go from 1,000 to 900, as in the example, you would only pay for 900 in the next year. Some newer cloud-focused contracts or licensing programs also offer more flexibility; for instance, certain Microsoft 365 or Azure plans via Cloud Solution Provider (CSP) or Microsoft Customer Agreement channels may allow cancellation or reduction on an annual or even monthly basis (with some notice periods). The key is knowing what type of agreement you have. If it’s a standard EA, assume no reductions unless you’ve negotiated something custom. If it’s an EAS or a cloud subscription program, check the terms – you might have more wiggle room to drop licenses at specific intervals.
- Negotiating true-down flexibility: If you’re entering a new agreement and foresee a potential need to reduce licenses (maybe you expect some downsizing, or you just want the safety valve), negotiate explicit true-down rights upfront. This could be in the form of a clause allowing you to reduce license counts by a certain percentage at each anniversary without penalty. Even a small allowed reduction (say 5-10% per year) is better than nothing – it at least gives you the option to course-correct if you over-forecasted. Another approach is negotiating an EAS instead of a perpetual EA, trading the right to true-down for not owning the licenses. If you’re already in an EA and reductions aren’t allowed mid-term, you can still plan for flexibility: use the renewal as your chance to right-size (and make sure Microsoft knows you will). Additionally, consider hybrid strategies, such as shifting some users to shorter-term licenses outside the EA if needed. For example, if one division is shrinking, consider moving those 200 users to a monthly CSP subscription for the remainder of the term and reducing your EA true-up accordingly. It’s a workaround to effectively “true-down” by reallocating usage to a more flexible channel.
- Reality check – Microsoft’s stance: Be aware that Microsoft reps may resist true-down provisions, since they prefer committed revenue. But if you have leverage (like a large spend or competitive pressure), it’s worth asking. Some enterprises have successfully inserted custom terms for reductions in cases of mergers, divestitures, or project cancellations. Always frame it as a reasonable request: “We’re fine committing to a baseline, but if our user count drops due to a business change, we need the ability to reduce accordingly.” Microsoft might agree to a limited true-down (e.g., only for specific scenarios, or requiring equal growth elsewhere). Still, even a narrow concession can save a lot of money if things change. The bottom line: true-down rights are about not overpaying for licenses you no longer use. If you can’t get them mid-term, then plan to execute reductions at renewal and manage your deployment carefully in the meantime.
Ramp-Up and Phased Deployment
Often, when signing a big Microsoft agreement, you don’t actually need all the licenses on day one. Maybe you’re rolling out a new service in stages, or migrating users gradually to a new platform. Paying for the eventual full capacity from the start would be wasteful.
This is where a ramp-up strategy comes in – structuring your license counts and costs to increase over time in step with your rollout.
- What is ramp-up in a license agreement? It means you and Microsoft agree to a phased approach: you start with a lower number of licenses, then ramp up to a higher number by later years of the contract. For example, perhaps you only need 2,000 licenses this year, but expect to need 4,000 by year 3. Instead of purchasing 4,000 from the outset, a ramp-up plan could have you license 2,000 in Year 1, 3,000 in Year 2, and 4,000 in Year 3. You may want to pre-negotiate pricing for each tier to ensure everything is clearly outlined.
- Benefits of ramp-up: The obvious benefit is cost alignment with adoption. You pay for licenses roughly when you actually start using them. In the early phase, you’re not paying for the extra 2,000 that would just sit unused. This avoids the dreaded shelfware and preserves budget for other needs. Ramp-ups also help with cash flow and ROI – the money you save in the first year can be invested elsewhere, and as you deploy more users and see value, you incrementally invest more. It’s a pay-as-you-grow model, which CFOs appreciate because it ties spending to realized business value.
- Negotiation tactics for ramp-ups: Don’t leave the ramp-up as an informal understanding or a vague promise. Formalize the ramp schedule in the contract or pricing appendix. For instance, include a table that says “Year 1: 2,000 licenses at $X per license; Year 2: 3,000 licenses at $Y; Year 3: 4,000 licenses at $Z” (or whatever structure you agree on). This ensures Microsoft commits to the pricing, and you commit to the planned increases. If you just tell the rep “we plan to add more later” without locking it in, you might find Year 3 pricing is higher than expecte,d or Microsoft doesn’t reserve the discount for those additional licenses. Also, consider negotiating price protections for the ramp. If you’re not sure of the exact timeline, you could negotiate that any additional licenses up to a certain quantity get the same discount as the initial ones. The key is to avoid a situation where you plan a ramp but end up either overpaying for the later increments or facing internal friction to add licenses because the cost jumps unexpectedly.
- Keep it realistic: Only commit to what you truly expect to need. Microsoft will love a ramp-up because it means you’re pledging to buy more later, but ensure the schedule matches your deployment plan. If things are uncertain, you might build in a bit of flexibility (e.g., the option to push a ramp target by a quarter, or a slight true-down if a pilot doesn’t pan out). The important part is that ramp-ups let you start smaller and grow, which is far better than starting huge and being stuck with unused capacity.
Handling Mid-Term Changes
Even with the best planning, surprises happen during the term of an agreement.
New requirements emerge, projects get delayed, or maybe you hire 100 people in a department unexpectedly.
Managing mid-term changes involves having processes in place to adjust license counts smoothly and governance to maintain control.
- Adding licenses mid-term (True-Ups): Microsoft’s standard process for mid-term additions is the true-up. Essentially, you can deploy extra licenses as needed during the year and then true up by reporting those additions at the anniversary, paying the prorated cost for them. To handle this properly, establish a clear internal process. Whenever a team needs more licenses (e.g., onboarding a batch of users to Office 365 or spinning up new VMs in Azure), it should go through a centralized request or tracking system. This way, you’re aware of every increment. Keep a log of added licenses; don’t wait for Microsoft to tell you at true-up time how many you consumed – track it yourself in real time. This avoids “true-up shock,” where you only discover at year-end that you added 500 more licenses than anticipated. If your agreement involves cloud subscriptions (like Azure or Microsoft 365 seats), additions might be reflected in monthly bills. However, you should still consolidate that information to understand the yearly total impact.
- Reducing or reallocating mid-term: If you find you have unused licenses mid-term, what can you do? In a strict EA, you typically can’t reduce the count until renewal. However, you can often reallocate licenses internally (e.g., assign an unused license to a new user instead of buying a new one). Always check for shelfware – maybe a project ended and freed 50 licenses; make sure those get reassigned to new needs before you consider purchasing more. If you have an agreement that allows true-down at anniversaries (like an EAS or certain subscriptions), mark those calendar dates and plan accordingly. You might need to notify Microsoft or your reseller of the reduction a month or two before the anniversary. Missing the window could mean paying another year for licenses you meant to drop. So build a reminder: “Each Q4, evaluate if we can reduce any licenses for the next year’s renewal”.
- Governance best practices: Effective mid-term management requires governance routines. Conduct quarterly (or at least bi-annual) internal audits of license usage. Compare how many licenses you’re paying for vs. how many are actually assigned/active. This helps catch any growing surplus early. Also, coordinate with business units about project rollouts or decommissions. If a new initiative is kicking off in six months, you’ll know a true-up is coming; if a project will retire some software, you might reduce usage. Having IT, project managers, and finance in communication ensures licensing stays aligned with actual operations. Maintain a variance tracker: forecast vs actual license count, updated quarterly, so you can see trends (e.g. are we consistently 5% over our initial estimate? 10% under?).
- Financial planning for mid-term changes: Budgeting shouldn’t assume a static number of licenses for three years. Work with Finance to set aside budget for expected true-ups (growth) or other adjustments. It’s much easier to justify spending when it’s been anticipated. For example, if you know the sales department might hire 50 people next year, plan for 50 more CRM licenses and include that in the budget forecast. Conversely, if you anticipate downsizing in a region, note the potential savings if you can reduce licenses (or at least avoid true-ups). The idea is to avoid surprises – no CIO or CFO likes an unplanned bill because 200 unbudgeted licenses were added in a rush. With planning, even if you do add 200 in a rush, you won’t be financially caught off guard because you had a contingency earmarked.
- Leverage mid-term changes in negotiations: Keep records of all these mid-term adjustments and challenges. They become evidence in your next renewal negotiation. If Microsoft’s rigid terms caused you pain (like paying for 100 unused licenses), bring that up when you renegotiate: “We need better flexibility this time around, because last term we wasted $X due to no reduction option.” Use the mid-term experience as leverage to push for better terms (true-down rights, more favorable ramp, etc.) in the next cycle.
Governance Checklist for Mid-Term License Management
Staying on top of a Microsoft agreement mid-term requires coordination and diligence. Use this quick checklist to ensure you’re covering the bases regularly:
- Review usage quarterly: Every quarter, review how many licenses you have versus how many are actually in use. Identify any surplus or shortfall early.
- Track project rollouts vs. license allocations: Align upcoming projects or expansions with licensing plans. Ensure that new initiatives have licenses budgeted, and that ending projects free up licenses that can be reassigned or dropped.
- Monitor shelfware and plan reductions: Continuously look for unused licenses (shelfware). If your contract allows, plan to true-down those at the next anniversary. If not, at least note them so you can eliminate them at renewal (and in the meantime, try to reallocate them to where they might be needed).
- Align co-term opportunities early: If any new purchase or agreement comes up mid-term (including through acquisitions or new services), plan to co-term it with your main agreement. Don’t let it create a random new renewal date; coordinate with Microsoft or your reseller to align end dates.
- Engage procurement, IT, and finance jointly: Mid-term license management isn’t just an IT task. Procurement can help negotiate amendments or track contract terms, and finance can help forecast and budget for changes. Keep all stakeholders in the loop with regular check-ins on license status and upcoming needs. A collaborative approach ensures financial and operational aspects stay aligned.
By following this checklist, you create a governance framework that makes mid-term adjustments routine and controlled, rather than chaotic fire drills.
Related articles
- Co-Terminating Microsoft Agreements: How to Align Your License Renewal Dates
- Microsoft True-Down Rights: How to Reduce Microsoft Licenses in an EAS
- Ramp-Up and Ramp-Down in Microsoft Deals: Flexible Purchasing 101
- Adding Licenses Mid-Term: Negotiating Changes During Your Microsoft Agreement
- Consolidating Microsoft Licenses: How to Manage Multiple Contracts Efficiently
Five Practical Recommendations
To wrap up, here are five concrete, practical recommendations for any organization managing Microsoft licenses mid-term:
- Align all agreements to a single co-term date. Whenever possible, consolidate your Microsoft licenses so they expire together. This one move simplifies management and gives you maximum negotiating power at renewal. It’s easier to remember one date and prepare for one big negotiation than to juggle many scattered terms.
- Negotiate explicit true-down rights in subscription contracts. If you’re using Enterprise Subscription Agreements or other subscription-based licenses, push for the right to reduce quantities annually. Even if it’s a small percentage or under specific conditions, having a true-down option is a valuable safety valve to avoid paying for unnecessary licenses.
- Plan ramp-up deployments with milestones and fixed cost tiers. Don’t buy everything upfront “just in case.” Instead, map out a ramp-up plan that matches your rollout schedule. Lock in pricing for those future increases now. This ensures you pay for licenses in sync with usage and aren’t stuck with a big bill for unused licenses in early years.
- Conduct quarterly internal license audits to avoid surprises. Treat license management as an ongoing process. Every quarter, audit your license counts, compare them to what you’re paying for, and adjust your internal usage or procurement plans. This proactive approach prevents year-end shocks and keeps you informed of how your usage is trending.
- Use mid-term adjustments as leverage during renewal negotiations. Keep a record of every pain point or change during the term – whether it’s paying for shelfware, scrambling for unplanned true-ups, or benefiting from flexibility you negotiated. Bring these lessons to the negotiating table. For example: “Last term we overpaid for 200 unused licenses – this time we need a term allowing reduction if that happens again.” Microsoft is more likely to agree when you present real data from your experience. Mid-term management isn’t just about the present; it sets the stage for a better next contract.
By implementing these recommendations, you’ll foster a more agile and cost-effective approach to Microsoft licensing. Remember, you are the customer – you don’t have to simply accept Microsoft’s default contract mechanics.
With a bit of negotiation and diligent management, you can mold the agreement to fit your organization’s changing needs, not the other way around.
Managing Microsoft licenses mid-term is all about being flexible, proactive, and strategic so that your software investment delivers value throughout the contract lifecycle. Happy license managing!
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