Microsoft EA EA Rightsizing License Levels (E5 vs E3, etc.)
Why Rightsizing Microsoft Licenses Matters
Many enterprises overspend on Microsoft 365 by defaulting too many users to the top-tier E5 license. This license bloat is a hidden cost driver in enterprise agreements, quietly inflating IT budgets. Read our guide to Microsoft EA optimization.
Companies often take a “one-size-fits-all” approach—assigning every user an E5 just to be safe—but the reality is that a large portion of those advanced features go unused.
Rightsizing licenses means matching each user with the appropriate edition (E5, E3, F3, etc.), ensuring you pay only for the capabilities needed. It’s the foundation of Microsoft cost optimization: reducing wasteful spend while still meeting all productivity, security, and compliance requirements.
Small adjustments can yield big savings. For example, we often find that 20–30% of E5 users in an organization could be on E3 with no loss of functionality. E
liminating this kind of overspend frees up budget (potentially millions over a multi-year agreement) without harming productivity. In short, E5 isn’t for everyone.
A smart mix of E5, E3, and F3—tailored to actual needs—lets you cut costs and still cover all bases.
Step 1 — Understand the Core Differences Between E5, E3, and F3
Before reassigning licenses, get clear on what each tier offers and when the premium E5 is justified versus the baseline E3 or frontline F3:
- E5 (Premium Tier) – Features: Includes everything in E3 plus advanced capabilities like Microsoft’s full security suite (e.g. Defender for Endpoint P2, Defender for Office 365, Cloud App Security), advanced compliance tools (Microsoft Purview suite: eDiscovery, insider risk management, advanced audit), Azure AD Premium P2 (for identity protection and Privileged Identity Management), and analytics tools (Power BI Pro, advanced Excel data types). E5 also bundles in telephony options (Teams Phone System and Audio Conferencing for enterprise voice calling). When justified, E5 should be reserved for users or scenarios that truly require these advanced features – for instance, if you need top-tier security monitoring on specific accounts, sophisticated data compliance controls, or if you plan to replace third-party phone and security systems with Microsoft’s E5 offerings. Cost: It’s the most expensive option (often ~50–70% more cost per user than E3), so every E5 license must earn its keep.
- E3 (Enterprise Standard) – Features: Provides the core Microsoft 365 suite needed by most knowledge workers. This includes full Office applications, email (Exchange), Teams for collaboration, SharePoint/OneDrive, and standard security/compliance features (basic threat protection, device management, retention policies, etc.). It lacks the “extras” of E5, but covers the productivity essentials and baseline security features, such as multi-factor authentication and basic DLP. When this is enough: For the majority of office-based employees, E3 fulfills all requirements – they can create documents, send emails, meet on Teams, and work securely. E3 is often the smarter default for users who don’t explicitly need E5’s bells and whistles. Cost: Mid-tier pricing makes it far more economical to assign E3 broadly and only elevate to E5 where a clear business need exists.
- F3 (Frontline/Firstline) – Features: A lightweight license for frontline staff or any user with very limited IT needs. F3 (formerly known as “Kiosk” or E1 in certain contexts) provides web and mobile access to Office apps (without requiring desktop installations), a business-class email account (with smaller mailbox limits), Teams communication, and limited security and device management for mobile devices. It’s designed for employees who share devices or only occasionally use a computer—such as retail associates, production line workers, call center representatives, and field technicians. When to use: Deploy F3 for roles that primarily require email and Teams access, or to view/edit documents via a browser, but not the full desktop Office suite. It ensures frontline workers stay connected without the cost of an E3 license that they wouldn’t fully utilize. Cost: F3 is significantly cheaper (a fraction of an E3 seat, typically under $10 user/month), so shifting a large frontline population to F3 yields substantial savings while still covering their communication and collaboration needs.
Bottom line: E5 offers powerful capabilities but at a premium price; E3 covers the standard needs of office workers, and F3 is a cost-effective solution for light-use employees.
Understanding these differences is crucial—many organizations pay for E5 features that a majority of their users neither need nor use.
Microsoft EA Term Length Strategy for Cost and Flexibility
Step 2 — Profile Your User Base
With the license features in mind, analyze your workforce by roles, departments, and usage patterns.
The goal is to categorize users based on what they do and which tools they truly need:
- Segment by Role/Department: Different departments have different requirements. For example, Finance and Legal teams might handle sensitive data and eDiscovery requests—candidates for E5 due to compliance needs. The Cybersecurity or IT Security team could also justify E5 for advanced threat protection tools. In contrast, departments like Marketing or Design may primarily use email, Office apps, and SharePoint, with little need for E5’s advanced features; these can safely thrive on E3. Meanwhile, frontline departments (such as retail operations, manufacturing, and customer service) typically don’t create complex documents or analyze data in-depth, so many of those users could fit an F3 profile.
- Identify User Personas: Create categories or personas, such as “Power User with Advanced Security Needs,” “Standard Information Worker,” and “Frontline Staff,” among others. Map each persona to a license: e.g., Power Users = E5 (but define what makes them power users, such as handling regulated information or requiring analytics), Standard Workers = E3, Frontline = F3. Consider also any special projects or tools certain groups use—if a particular team requires Power BI Pro or Teams Phone, that might bump them into E5 or an add-on.
- Usage Patterns: Look at actual usage data if available. Many organizations run Microsoft 365 usage reports or use analytics tools to see which services each user consumes. Profile users by these patterns: if someone never schedules Teams meetings with dial-in, never accesses the Compliance Center, and doesn’t use Power BI or Defender dashboards, they are functioning like an E3 user, even if they have an E5 assigned. Real-world example: We often find groups, such as administrative staff or content creators, using mostly email/Word/Teams, rather than the advanced E5-only features—strong evidence that they could be on E3 without impact. On the other hand, if a subset of users heavily uses Power BI or advanced SharePoint security features, note that as well.
By profiling your user base in this way, you establish a clear picture of who truly needs the premium toolkit versus who can excel with the standard toolkit. This sets the stage for targeting downgrades without disrupting anyone’s workflow.
Step 3 — Identify Over-Licensed Users
Next, zero in on where you’re over-licensing – users assigned to a higher tier than necessary.
This requires comparing the license each person has against the features they use or need in their role:
- Run Usage Analytics: Use the Microsoft 365 Admin Center reports or third-party tools to find dormant E5 features. Identify users with E5 who have never leveraged E5-exclusive services (e.g., they have zero activity in Advanced Threat Protection dashboards, no eDiscovery cases, no Teams Phone usage, etc.). If an E5 user’s activity looks identical to that of an E3 user, that’s a flag – they likely don’t need the E5 license. A classic example is an executive given E5 “by default” who ends up using only Outlook, Teams, and maybe Excel; all of which work just as well on E3.
- Common Misassignments: It’s not unusual to find whole groups over-licensed simply due to blanket policies. For instance, some companies assign all senior managers to E5, regardless of their specific needs, or give every new hire an E3 designation even if their job primarily involves phone-based support. Another scenario is maintaining E5 for users who need it temporarily for a project, but never reverting them to E3 afterward. Regular audits often reveal such misalignments.
- License Tier vs. Typical Over-Assignment: To illustrate, here are common over-licensing scenarios we encounter: License Tier, Typical Over-Assignment Scenario: E5, Assigned to users who do not use advanced security/compliance features. For example, an office administrator or marketing specialist on E5 typically uses only email, Office apps, and Teams – paying for extra protection and analytics that they don’t utilize. This is paying champagne prices for a beer appetite. E3 is given to users who could suffice with F3. For instance, frontline employees (retail clerks, factory workers, field service staff) often only need email or Teams access, yet many companies still give them full E3 licenses. That E3 is overkill when a far cheaper F3 license would meet their limited usage. Note: F3 itself is a minimal feature set, so you won’t typically “over-assign” someone with F3. The key is instead to spot where an E3 or E5 is allocated, but an F3 would do. The table above highlights that over-licensing typically involves the issuance of E3s and E5s where they are not warranted.
- Impact of Over-Licensing: Each over-licensed user represents wasted budget. Assigning an E5 unnecessarily might waste upwards of $ 20 per month more compared to an E3. It might seem small per user, but multiplying that by hundreds or thousands of users over the year reveals a huge hidden cost. Recognizing these users is crucial; they are prime targets for downgrading with minimal resistance, as they’re not actively using what they’d lose.
By identifying over-licensed accounts, you create a roadmap of who to downgrade without disrupting business.
It’s essentially finding money on the table – you already paid for these high-end licenses, but if they’re not being utilized, it’s an opportunity to save going forward.
Step 4 — Downgrade Where Practical
Once you know who is over-licensed, take action to downgrade licenses where it makes sense.
The goal is to transition users to a lower-cost plan without impacting their productivity or security:
- Plan the Downgrade Rollout: Start with a pilot if you’re cautious. Select a small set of over-licensed users (for example, 50 users identified as E5 to E3 downgrade candidates) and downgrade them to E3. Monitor for any feedback or issues. In our experience, if the analysis is done correctly, you’ll hear crickets – users continue working as normal because their day-to-day tools remain unchanged. This builds confidence to expand the downgrades. Always communicate with IT and helpdesk teams about the changes, so they can watch for any unexpected needs or questions (though there should be few if done correctly).
- E5 to E3 Downgrade: When moving a user from E5 to E3, ensure you address any dependencies. For instance, if a user is assigned a Phone System (dial tone) via E5, you may need to add a separate Phone System license or remove that capability. Likewise, if they have any E5-specific compliance data (such as active eDiscovery holds), ensure that downgrading won’t lock that data up. In practice, we find most users who moved off E5 never notice a difference – because they weren’t using the E5-only features to begin with. You continue to provide them with email, Office apps, Teams, etc. as before.
- E3 to F3 Downgrade: For users identified as true frontline or light-usage (only need email/Teams access, perhaps on mobile devices), consider downgrading from E3 to F3. This requires some planning: F3 has no desktop Office apps and possibly smaller mailbox/storage, so verify that’s acceptable for those users. Many frontline employees share kiosks or use personal smartphones, so web/mobile apps suffice. By introducing F3 for these staff, you’re not taking away communication tools—they still collaborate and stay in the loop—just doing it on a learner license. It’s a high-impact move for cost savings when you have thousands of such employees.
- Communicate Value, Not Cuts: Frame downgrades internally as aligning tools with needs (which is a positive efficiency move), not as depriving anyone of something. Often, the users won’t even be aware of a license change unless told. For transparency, however, you can inform managers that certain teams will be assigned to an appropriate license that still meets all their work needs.
- Example Savings for a 10,000-User Company: Rightsizing can result in significant cost savings. Imagine an organization with 10,000 users, where initially half were on E5 and the other half on E3. Through careful review, you determine that 2,000 of the E5 users can be downgraded to E3, and 1,000 of the E3 users can be upgraded to F3. Roughly speaking, that could reduce annual licensing costs by approximately $1 million (for instance, saving around $20 per user/month for the 2,000 E5→E3 conversions and around $15 per user/month for the 1,000 E3→F3 conversions adds up quickly). This is money back in the IT budget without any hit to productivity or risk. Even if your numbers are smaller, the principle holds: every user downgraded is ongoing savings.
In summary, downgrading, where practical, is about eliminating the waste. It’s a straightforward way to trim costs—especially in yearly true-up or renewal cycles—while your users continue working with the tools they use.
Just be sure to check for any feature dependencies, communicate effectively, and keep the process as frictionless as possible.
Step 5 — Handle Exceptions Strategically
Rightsizing doesn’t mean everyone goes to a lower tier. There will always be exceptions, and these should be handled deliberately:
- Retain E5 for High-Need Users: Identify the users or roles for whom E5 is truly justified and make a conscious decision to keep them at that level. These tend to be high-security or compliance-heavy users. For example, your Legal and Compliance department might actively use Advanced eDiscovery, audit, or communication compliance features available only in E5. Similarly, your Cybersecurity team or SOC analysts may rely on the advanced threat hunting and analysis tools (e.g., Defender, Cloud App Security) that E5 provides. Those capabilities are mission-critical for them, so you’ll maintain E5 for these groups.
- Selective E5 Deployment: The key is selectivity. Instead of an “all executives get E5” rule, drill down: maybe only the CISO’s team and specific executives involved in sensitive IP or high-risk roles truly need the full E5 suite. Or if your company uses Teams Phone System for telephony, perhaps only employees who require a phone line (say, in customer-facing or sales roles) need the Phone System license (which could be achieved via E5 or by adding a phone add-on to E3). By selectively assigning E5, you ensure those who benefit from the advanced features have them, and those who don’t aren’t unnecessarily oversubscribed.
- Avoid All-or-Nothing Sales Pitches: Be cautious of the blanket upsell. Microsoft (and some resellers) will often promote E5 as the “everything included” option, suggesting that organizations simplify licensing by moving everyone to E5. While it’s true that E5 bundles a wide array of tools, buying E5 for all users “just in case” is usually not a cost-effective approach. You end up paying for a Cadillac for every driver, when many would be fine with a reliable sedan. It’s perfectly viable (and supported by Microsoft) to mix license types in your tenant. Don’t let a sales pitch push you into an all-E5 corner—stick to a data-driven allocation. In negotiations, if offered an E5-for-all deal, weigh it against the analysis you’ve done; often, you can counter-propose a smaller E5 footprint plus some add-ons if needed.
- Have an Exception Approval Process: For governance, it is helpful to formalize the process for obtaining an E5 license outside the initially defined groups. Any new request for an E5 upgrade may require justification (what features do they need and why is E3 insufficient) and a sign-off from IT or management. This way, you prevent “license creep,” where, over time, E5 counts climb back up without oversight. Being strategic means E5 is treated as the premium resource that it is, allocated with intention rather than by habit.
By handling exceptions strategically, you ensure that cost optimization doesn’t undercut any critical capabilities.
The idea is to cover all needs with the minimum necessary spending. You might end up with, say, 10-15% of users on E5 because they genuinely need it, and that’s perfectly fine. The win is that you avoided 100% on E5 when only a fraction of it was required.
Step 6 — Build a Governance Framework for License Levels
Rightsizing is not a one-time project; it needs ongoing attention. Establish a governance framework to keep license assignments optimized over the long term:
- Implement Regular License Reviews: Set a cadence (quarterly is a good starting point) to review license assignments versus usage. The business evolves—people change roles, new projects start, old projects end, and usage patterns shift. A user who required E5 last year may no longer need it, or vice versa. By auditing licenses every three months (even a high-level scan of reports), you can catch drift and correct course. These quarterly license reviews act like a health check to prevent overspend from creeping back in.
- Utilize True-Down Opportunities: In enterprise agreements (EAs), you’re typically locked in for the year, but you have the opportunity to adjust quantities at renewal (or annually in some contracts)—this is known as true-down. Make sure you capitalize on this. If your analysis shows you can reduce 500 E5 licenses, plan to reflect that in the next EA renewal instead of blindly renewing the old counts. Microsoft typically won’t volunteer a reduction; it’s up to you to initiate it. Keep records of your current actual usage so you can true-down to those levels and avoid paying for headroom you don’t need.
- Governance Policies: Create internal policies around license provisioning. For example:
- Default License Policy: Determine the default license for new hires (likely E3 for knowledge workers and F3 for frontline staff). This prevents managers from over-licensing new employees out of caution or due to a misunderstanding.
- Upgrade/Downgrade Approval: As noted in Step 5, require justification for exceptions. Perhaps any upgrade to E5 needs sign-off and is time-bound (e.g., “we give this developer E5 for 3 months for a project, then we will review if it’s still needed”).
- Deprovisioning Process: Tie license removal to HR off-boarding so that when someone leaves, their license is promptly freed up or removed from the tenant. An orphaned E5 license assigned to a departed user is a waste of resources (and a security risk if the account isn’t disabled).
- Transparency and Reporting: Provide dashboards or reports to IT leadership and finance that display the current license breakdown (including the number of each license level) and trends over time. This keeps everyone aware of the license mix and highlights if E5 counts start creeping up. When people know it’s being watched, they are more mindful of requesting expensive licenses.
- Training and Awareness: Ensure that your IT admins and even procurement teams understand the licensing options. Sometimes over-licensing occurs simply because the team provisioning accounts always assigns E5 licenses, as “that’s what we did at the last company.” Educate them on the differences and the cost implications. When those handling day-to-day license management are on board, governance is much easier.
A solid governance framework makes rightsizing sustainable. It shifts your approach from reactive (fixing it once every three years when budgets are tight) to proactive (continually aligning licenses to needs).
This discipline is what keeps the Microsoft 365 environment cost-effective year after year, without eroding the value it delivers to users.
Step 7 — Use Rightsizing as a Negotiation Lever in EA Renewals
Finally, leverage your rightsizing efforts when it’s time to negotiate with Microsoft (or your reseller) for your next Enterprise Agreement or renewal:
- Present a Rationalized License Count: By now, you should have a clear picture of how many E5, E3, and F3 licenses your organization truly needs. Use that data as a starting point in negotiations, rather than simply accepting last year’s numbers or Microsoft’s recommended upsell. For example, if you’ve trimmed your E5 users from 3,000 down to 500 genuinely needed, bring that to the table. This signals to Microsoft that you won’t be paying for 2,500 unnecessary E5s anymore. It sets a firmer baseline.
- Push Back on Bundling Pressure: Microsoft’s sales teams often try to entice customers into broader bundles or all-in cloud commitments (like “E5 for everyone plus maybe some add-ons”) during EA talks. With your rightsized model, you have justification to push back. You can say, “We have 500 users who need E5; for the rest, E3 is sufficient, and we’re not interested in blanket E5 licensing.” This puts the onus on them to offer creative solutions if they want a bigger share of your wallet (perhaps targeted add-on packages or limited-time promos), rather than you overbuying by default.
- Drive Price Concessions: Using Data to Show a Reduced Scope Can Improve Your Pricing. If Microsoft originally expected, say, 10,000 E3 and 0 E5, and you come in saying, “We want 8,000 E3, 2,000 F3, and 500 E5,” that mix change might prompt them to offer discounts on the E5 portion to encourage you to take a few more than 500. You can negotiate from a position of strength: you’re prepared to go minimal, which means Microsoft has to work to sell you more. Any additional licenses or bundles they propose should come with demonstrable value and a good discount, or you’ll stick to your lean plan.
- Document Your Analysis: It can be helpful to document the process you undertook to rightsize (at a high level) and share it in negotiation meetings. This could be as simple as a one-page summary: “After analyzing usage, we identified X% of our E5 licenses were underutilized and have optimized our license allocation accordingly. Our renewal needs are based on this careful analysis.” This tells Microsoft’s team that you are an informed customer. They are far less likely to push vague arguments like “many customers find value in E5 for all users” when they know you have done your homework with actual data. Instead, the conversation shifts to concrete value: “Alright, you’re only taking 500 E5 – let’s talk about how to maximize those and maybe pilot some E5 add-ons for a subset of others,” etc., rather than a hard sell to double your E5 count.
- Use Competitors or Alternatives as Leverage: This is tangential to rightsizing, but worth mentioning. If you’ve rightsized and Microsoft still wants you to consider more E5 features, you can mention that you’re evaluating third-party solutions for certain needs rather than committing to Microsoft entirely. For instance, if they implement full E5 security, note that you may continue to use your current security vendor for certain functions for the rest of the users. This leverage can further incentivize Microsoft to offer better pricing or flexible bundles on the E5 features truly critical to you.
In summary, rightsizing not only saves costs directly, it strengthens your hand in negotiations. It shows that you are willing to walk away from overpriced or unnecessary licenses, which in turn pressures Microsoft to offer more reasonable terms.
When you enter an EA renewal armed with a rightsized license plan, you’re essentially negotiating from a position of need-to-have, not nice-to-have – and that is a powerful stance to achieve a favorable deal.
Rightsizing Checklist
Use this checklist to ensure you’ve covered all the bases in optimizing your Microsoft 365 license allocations:
- Map Features to Roles: List out what each user role or department in your organization needs from Microsoft 365. Align those needs to the appropriate license tier. (E.g., Sales – needs email, Office, Teams = E3; Compliance Officer – needs audit and discovery tools = E5; Frontline Retail – needs Teams kiosk and email = F3).
- Identify Dormant E5 Workloads: Run reports to find E5-specific features that aren’t being utilized. If a user’s account shows no activity in things like Advanced Threat Protection, audio conferencing, or other E5-only services, mark them as a downgrade candidate.
- Downgrade Unused Licenses: For each identified over-licensed user, execute a plan to reassign them to E3 or F3 as appropriate. Keep track of these changes and verify that their essential work continues unaffected after the switch.
- Build an Exceptions List: Document the users or groups who will remain on E5 (or E3 if you’re also optimizing E3 vs F3). This list should have clear reasoning (e.g., “Jane Doe – Head of Legal, needs E5 for compliance,” “All Store Managers – need full Office, so keep E3”). Having this list prevents confusion and ensures that only approved users have access to the higher licenses.
- Document Your Governance Process: Write down the policies and procedures for license management moving forward. Include how often you’ll review licenses, who is responsible for adjustments, how new hires are licensed by default, and the process for requesting an exception or upgrade. This documentation will help institutionalize the rightsizing practice so it survives beyond a one-time project.
- Monitor and Refine: (Bonus step) Set up a mechanism to continuously monitor license utilization. Whether via quarterly meetings, dashboards, or automated alerts from a license management tool, ensure there’s ongoing attention to staying rightsized.
Consider this checklist your quick-reference guide. If you can confidently check all these boxes, you’ve likely wrung out the excess licensing costs and put a sustainable system in place to keep them out.
5 Recommendations for Immediate Action
If you’re looking to start saving on Microsoft 365 licensing right now, here are five actionable steps to kick off your rightsizing initiative:
- Run Usage Reports Today: Begin by extracting licensing and usage data from your Microsoft 365 admin portal. Look at which users have E5 versus E3 versus F3, and correlate that with usage metrics (e.g., last login, apps used). This will quickly highlight obvious mismatches – such as E5 users with minimal activity. Knowledge is power: you need this data to drive decisions.
- Target 20–30% of E5 Users for Downgrade: As a rule of thumb, it’s common to find at least 1 in 5 E5 users who don’t truly need that level. Identify that initial cohort (for example, those not using any E5-only services) and plan to move them to E3. This doesn’t require waiting for a renewal – if you have flexibility, you can reassign licenses internally and simply not renew the extra E5 seats later. Starting with a 20–30% downgrade goal focuses your effort on the biggest quick wins.
- Introduce F3 for Frontline Staff: If you haven’t already, evaluate the feasibility of using F3 licenses for your frontline or less-technology-intensive workers. Pilot it with one division or location. For instance, convert a group of warehouse or retail employees from E3 to F3 and see if their workflow remains smooth. You’ll likely find they notice no difference for their needs, validating a broader rollout. Every user who shifts to F3 results in a substantial per-seat cost reduction.
- Establish Quarterly License Reviews: Don’t make rightsizing a once-and-done project. Put a recurring calendar reminder for a small team (IT asset management, procurement, and an IT ops person, perhaps) to review license assignments every quarter. In these reviews, check for new over-licensing (e.g., someone assigned E5 temporarily that never got removed) and under-licensing if any (users requesting capabilities they lack). Regular reviews will keep your environment optimized and prevent cost creep.
- Use Rightsizing Data to Reset EA Baselines: If an enterprise agreement renewal is on the horizon (within the next year or so), start preparing now. Gather the data from your rightsizing effort to determine the exact number of each license you truly need going forward. When negotiations start, present these numbers confidently. By resetting your EA baseline to the right mix (fewer E5s, appropriate E3/F3 counts), you avoid overcommitting to inflated numbers and give yourself leverage to negotiate better pricing on the licenses you do need.
These actions will jump-start your cost optimization without delay. In our experience, clients who take these steps often see savings in the very next billing cycle (for subscription-based plans) or incorporate significant reductions at their next renewal.
The key is to be proactive—Microsoft licensing costs won’t lower themselves, but with a bit of analysis and follow-through, you can quickly bend the curve downward.
FAQ
When is E5 truly required?
E5 is truly required when a user or function demands Microsoft’s most advanced features. This typically includes scenarios needing advanced security (such as threat hunting, analytics, and response capabilities beyond the basics), advanced compliance (like running content eDiscovery across the org, utilizing Purview Information Protection, or needing long-term audit logs), or enterprise telephony integration (using Teams as a full phone system with call management). In short, roles such as compliance officers, security analysts, or executives handling highly sensitive data may warrant E5. If those users will actively use the E5-only features to protect the organization or drive insight, then E5 is justified. For everyone else, E3 (with occasional smaller add-ons if needed) will cover it.
Can I downgrade E5 users mid-term?
Yes, you can technically downgrade a user’s license at any time by assigning them a lower license and removing the higher one. The user experience will adjust immediately to the new license capabilities. The caveat is contractual: if you’re in a yearly or multi-year agreement (EA), you may have already paid or committed to that E5 seat for the term. In that case, downgrading the user won’t yield an immediate cost reduction—you’d free that E5 license to potentially use elsewhere, and then reduce the count at the next true-up or renewal to realize savings. However, if you’re on a month-to-month or CSP subscription, you can usually reduce the E5 license count and stop paying for it from the next billing cycle. Either way, from an IT standpoint, moving a user to E3 is straightforward and can be done mid-term; just plan for the financial aspect in line with your agreement terms.
How much can I save by moving E5 → E3?
The savings are significant on a per-user basis. Microsoft 365 E5 licenses typically cost around 50-60% more per user than E3 licenses. In practical terms, that might be roughly an extra $ 20 or more per user per month that you’re paying for E5. Downgrading one E5 user to an E3 could save approximately $240–$300 per year for that user. Multiply that by, say, 100 users, and you’re looking at $24k–$30k annually; for 1,000 users, it’s in the hundreds of thousands saved. And that’s just the license cost, not even counting any ancillary savings (such as reduced need for certain add-ons). The exact amount will depend on your pricing and region, but you can generally expect to save tens of dollars per user per month by moving from E5 to E3. Over a typical 3-year agreement, each E5->E3 downgrade is roughly a four-figure sum saved, making it well worth investigating at scale.
Is F3 practical for large enterprises?
Absolutely. F3 (and similar frontline licenses) are specifically designed for large enterprises with sizeable frontline or operational workforces. Many Fortune 500 companies have thousands of employees on F3 for roles such as retail staff, hospital nurses, factory operators, and airline crew. It’s practical as long as you match it to the right users. Key considerations: F3 users will primarily use web or mobile apps, so ensure they have internet access and a compatible device (such as shared kiosk PCs, tablets, or smartphones) when needed. Additionally, you may need to adjust some expectations. For example, an F3 user receives a smaller mailbox and cannot download desktop Office applications. Still, if they rarely use email or can work with web-based Office, that’s usually acceptable. Administratively, it’s as easy as any other license – you assign F3 in the Microsoft 365 admin center just like E3/E5. It integrates into your tenant seamlessly (frontline users can still be in Teams chats with everyone, access SharePoint, etc.). So yes, for large enterprises, F3 is not only practical, it’s a cornerstone of a tiered licensing strategy that can save millions. The key is identifying those users who don’t need a full desktop Office environment and ensuring their managers understand what F3 entails. Once that’s clear, rolling out F3 at scale is very feasible and commonly done.
How do rightsized licenses affect EA negotiations?
Rightsizing your licenses puts you in a much stronger position in Enterprise Agreement negotiations. By entering a renewal with a clear, data-backed understanding of what you need (e.g., “We require 500 E5s and 9500 E3s” instead of blindly renewing 2,000 E5s and 8,000 E3s from the last cycle), you avoid overcommitting and overspending. Microsoft reps will see that you have a well-considered license plan, which means they’re less likely to succeed with a generic upsell pitch. This can shift the negotiation focus from “how can Microsoft sell more to you” to “how can they help meet your identified needs at the best price.” In many cases, showing you’re willing to drop unnecessary licenses can even win you better discounts on the ones you do agree to buy, since Microsoft would rather keep you as a customer on a smaller deal than lose the business entirely.
