Microsoft True-Down Rights
What Are True-Down Rights in Microsoft Licensing?
True-down rights give you the ability to reduce your license counts (and costs) during a multi-year agreement.
In other words, if your organization needs fewer Microsoft licenses than originally planned, true-down allows you to lower the quantity and pay less going forward.
This is the inverse of a “true-up,” where you add licenses (and costs) when your usage grows.
Under a standard Microsoft Enterprise Agreement (EA), you typically cannot reduce licenses mid-term.
You lock in several licenses for the full term (usually three years) and can only increase that number if needed. Any unused licenses become shelfware until the EA term ends. For an overview, Managing Microsoft Licenses Mid-Term: Co-Termination, True-Downs & Ramp-Up Strategies.
By contrast, with certain agreements like the Enterprise Agreement Subscription (EAS), Microsoft allows both true-ups and true-downs. This flexibility means you’re not stuck paying for licenses you no longer use in the middle of your contract.
True-down rights matter especially in uncertain business climates. Organizations that undergo layoffs, divestitures, or seasonal fluctuations risk overpaying for idle licenses under a traditional EA.
True-down provisions offer a strategic safety valve: you can adjust your license footprint downward and align costs to actual needs. In short, true-down rights empower you to avoid waste and optimize spend when your workforce or IT requirements shrink.
How Enterprise Subscription Agreements Enable True-Downs
Microsoft’s Enterprise Agreement Subscription (EAS) is the primary vehicle that enables true-downs. An EAS is similar to a standard EA but with subscription-based licensing instead of owning perpetual licenses.
The mechanics are straightforward: each year before your agreement anniversary, you report your current license counts. Microsoft then adjusts your billing for the next year based on that new count. If you have fewer users or devices to license, you pay for the reduced quantity in the future.
For example, imagine you start an EAS with 1,000 user licenses in Year 1. Before the Year 2 anniversary, you assess usage and find only 800 are needed (perhaps due to staff reduction or efficiency gains).
Under the EAS, you submit this updated count, and in Year 2, you are billed for just 800 licenses instead of 1,000. The same process repeats at Year 3. Essentially, you only pay for what you use each year. In a standard EA, by contrast, you would have been stuck paying for all 1,000 licenses for the entire term, even if 200 sit unused.
This annual adjustment process is often referred to as an annual reconciliation. The EAS still allows true-ups as well – if your needs grow, you add licenses and pay the extra at the anniversary.
The key difference is that it also allows the reverse. To execute this, Microsoft typically requires you to notify them (usually via your Licensing Solution Provider or Microsoft rep) of the revised counts a certain number of days before the renewal date each year.
The process is built into the EAS program: the first year’s order sets an initial quantity, and subsequent years’ orders can “float” up or down based on your submitted counts.
The only caveat is that you must generally maintain the minimum entry size for an enterprise agreement (usually 500 users/devices).
But beyond that baseline, an Enterprise Subscription Agreement offers a much-needed release valve for downsizing license commitments mid-term.
Focus on flexibility to achieve savings, Ramp-Up and Ramp-Down in Microsoft Deals: Flexible Purchasing 101.
Eligible Products and Scenarios for True-Down
Not every Microsoft license or service is equally flexible when it comes to true-downs.
In an Enterprise Subscription Agreement, the most common eligible products for true-down are user-based subscriptions.
This includes major suites and licenses such as Microsoft 365 (Office 365) enterprise plans, Windows 10/11 Enterprise subscriptions, and EMS (Enterprise Mobility + Security) licenses.
These cloud-based or user-based subscription products can typically be adjusted annually under an EAS, reflecting changes in your user count or device count.
However, it’s important to check the specifics of your agreement and Microsoft’s Product Terms for each product. Some licenses have special rules or are not reduction-eligible mid-term.
For example, certain add-on subscriptions or premium SKUs might require a full-year commitment. If a product is labeled as an “Enterprise Product” under your agreement (meaning you agreed to license it for all qualified users in your organization), true-down flexibility may be limited.
In practice, you can only reduce those if your total number of employees or devices drops, since you must still cover everyone who requires a license.
Usage-based services like Azure consume credits rather than fixed licenses, so they don’t follow a true-up/true-down model – you simply pay for what you use each month.
Similarly, server or on-premises licenses purchased perpetually under a traditional EA cannot be reduced mid-term (you own them, or at least are committed for the term). The true-down concept mainly applies to subscription licenses within an EAS.
In summary, focus on true-down plans on your subscription licenses (cloud services and user subscriptions). Always verify if a given product is “reduction eligible” in Microsoft’s terms.
Most Office 365/M365 plans, Dynamics 365 subscriptions, and other cloud offerings in an EAS can be decreased at the annual mark. Just be cautious: not every add-on or niche product allows cuts mid-year, so do your homework on each SKU’s rules.
Read why this is essential: Co-Terminating Microsoft Agreements: How to Align Your License Renewal Dates.
Steps to Execute a True-Down Effectively
If you have true-down rights, using them effectively requires planning and coordination. Here is a step-by-step approach to execute a true-down and maximize your savings:
- Conduct an Internal License Audit: Well before your agreement’s anniversary, review your current license usage. Identify how many users or devices are actually active versus how many licenses you’re paying for. This involves checking Azure AD or Microsoft 365 admin centers for active user counts, reviewing login/activity reports, and auditing any on-premises software usage. The goal is to spot unused or underused licenses.
- Forecast Workforce and Usage Changes: Look ahead at any known business changes. Are there planned layoffs, hiring freezes, or department closures? Will a project end or a division be spun off before the next anniversary? Collaborate with HR and department heads to understand staffing changes. Also consider seasonal trends – some industries hire temporary staff ,which might inflate license needs temporarily. Project these changes to determine a realistic license count for the next year.
- Document the Reduction Plan: Based on the audit and forecasts, decide how many licenses of each product you intend to cut. Document which accounts or areas will lose licenses (for internal tracking). Ensure you won’t inadvertently remove licenses that are actually needed – double-check with IT admins that users tied to licenses marked for removal truly don’t need access. Planning this out in detail helps avoid mistakes, like revoking a critical user’s Office 365 license.
- Check Contract and Product Terms: Before submitting any changes, review your Enterprise Subscription contract and product terms for any constraints. Confirm that the products you want to reduce are eligible for true-down and that you won’t violate any minimum quantity clauses. For instance, ensure you’ll still meet any required minimums after reduction (e.g., the 500-user overall minimum or any product-specific floor). If something is unclear, ask your Microsoft reseller or account manager for clarification in writing.
- Submit Revised Counts to Microsoft: There is typically a window leading up to the anniversary (for example, 30-60 days before the date) during which you must notify Microsoft of changes. Follow the procedure – often this means submitting an updated order or an “annual order true-up/true-down form” through your Licensing Solution Provider. Provide the new license quantities for each product. It’s wise to get confirmation of receipt and acceptance of the changes.
- Validate New Billing and Records: Once the anniversary passes and the true-down takes effect, closely review your next Microsoft invoice. Ensure the quantities and charges now reflect the reduced counts. Internally, update your license inventory records and any allocation tools to the new baseline. Communicate to finance that the licensing costs should have decreased, and tie the savings back to budgets. Also, keep a record of the changes in case there are any later disputes or true-up audits – documentation of what was submitted and approved is key.
By following these steps, you execute the truth-down in a controlled, transparent way.
The keys are early planning, solid data on usage, and strict adherence to Microsoft’s timelines for submission.
Common Pitfalls When Reducing Licenses
While true-downs can save money, there are several common pitfalls and mistakes to avoid:
- Missing the Deadline: Perhaps the biggest pitfall is missing the window to submit your true-down. If you fail to report reductions by the annual deadline, you’ll be stuck paying for the higher license count for another year. Mark your calendar well in advance and don’t miss that submission date.
- Assuming All Licenses Are Reducible: Do not assume every product in your agreement can be freely reduced. Some licenses (especially if they were part of an enterprise-wide commitment or have multi-year terms) might not be eligible for reduction until renewal. Always verify the rules for each product. Assuming you can drop a certain SKU and later finding out it was ineligible can lead to compliance issues or surprise costs.
- Overly Aggressive Cuts: Reducing too many licenses in an attempt to save money can backfire if you later need those licenses back. If you cut down to a bare minimum and then your user count bounces back or a new project demands more licenses, you’ll have to purchase additional licenses mid-term. Those could come at a higher unit cost or complicate your agreement. Avoid the yo-yo effect: only true-down what you are confident you won’t use in the coming year. It’s often better to leave a small buffer of extra licenses than to face a shortfall.
- Lack of Internal Coordination: Sometimes one part of the organization may initiate a true-down without informing others. For example, IT might reduce licenses, not realizing another department plans to onboard a contractor team that will need those licenses next quarter. Failing to coordinate can lead to internal finger-pointing or business disruption when someone tries to log in and finds no license available. Always align the true-down plan with all stakeholders (HR, department leads, finance) to ensure it matches business reality.
- Poor Record-Keeping: Another pitfall is not keeping proof of what was agreed upon. If you tell your Microsoft rep about a reduction but don’t have it in writing or properly submitted, you might find the billing didn’t actually change. Treat the true-down like a contractual change – document everything. That way, you can resolve any discrepancies quickly by referring back to your records.
By being mindful of these pitfalls, you can avoid the common errors that cause organizations to miss out on savings or, worse, end up non-compliant. In essence, be timely, thorough, and cautious when reducing licenses.
Negotiating Stronger True-Down Terms
If flexible licensing is a priority, it pays to negotiate true-down terms up front when signing your agreement.
Microsoft’s default contracts often favor steady or growing license counts, so you may need to push for provisions that protect your right to reduce.
Here are some negotiation tips for stronger true-down capabilities:
- Explicit Contract Language: Make sure your contract (and the Enterprise Enrollment paperwork) explicitly states your right to reduce license quantities annually under the EAS. It should reference the ability to submit reductions at each anniversary. Don’t rely on verbal assurances – get the truth down right in writing to avoid disputes later.
- Minimum Commitment and Baselines: Clarify any minimum license quantities. Microsoft EAS typically has a minimum of 500 users/devices as an entry point. Ensure that beyond that, there’s no hidden clause forcing you to maintain a higher baseline. If your initial count is, say, 1,000, confirm whether you can dip below that if your organization legitimately shrinks. Try to avoid any contract language that locks you to the highest count ever achieved during the term. The more flexibility here, the better.
- Cap on Reductions (or Lack Thereof): Sometimes, Microsoft might propose a cap like “no more than X% reduction per year” or discourage large drops. During negotiation, push back on any caps. If you anticipate a possible need to cut deeply (for instance, divesting a business unit), discuss scenarios with Microsoft and negotiate terms to accommodate that. You may not get unlimited reductions without question, but even loosening a cap (for example, allowing a 20% drop instead of 10%) could be valuable.
- Avoiding Penalties or Additional Fees: Ensure there are no penalties for reducing licenses. The true-down should simply adjust the cost downward, not incur extra charges. Occasionally, vendors attempt to include terms like “early termination fees” for dropping certain subscriptions – strive to eliminate those for the products under your EAS. The cleaner the right to reduce, the more savings you actually realize.
- Hybrid Enrollment Clarity: If you are a large customer with multiple Microsoft enrollments (perhaps an EA for some products and an EAS for others, or separate country-specific agreements), clarify how true-down works in each. Each enrollment is managed separately. Negotiate each one’s terms so that you know exactly where you can reduce counts. The goal is to avoid ambiguity – you don’t want to assume you can reduce licenses in a particular pool and later find that the agreement didn’t allow it.
- Leverage Renewal Time: The best time to negotiate flexibility is before signing or at renewal. Use your willingness to commit (or the possibility of switching to alternatives or even to a CSP model) as leverage. If Microsoft knows you are concerned about over-committing, they may be more willing to grant true-down rights to secure the deal. Emphasize how important flexibility is to your company’s leadership, and that you’d consider other licensing models if an EA/EAS doesn’t provide it.
By proactively negotiating, you can embed true-down friendliness into your agreement from the start.
Microsoft might not volunteer these concessions since they prefer revenue predictability, but if you ask and have a credible rationale, you can often improve the terms.
The result is an agreement that better aligns with your business’s ups and downs, rather than one that assumes perpetual growth.
Practical Checklist for True-Down Planning
To successfully manage true-downs, treat it as an ongoing process rather than a one-time task.
Use this practical checklist to stay prepared:
- Review License Usage Quarterly: Don’t wait for the yearly true-up/true-down window to realize your usage. Every quarter, review how many licenses are actively in use versus purchased. Regular check-ins help catch trends (up or down) early, so you can act or investigate as needed.
- Track Anniversary Dates and Set Reminders: Mark your EAS agreement anniversary on the calendar and work backwards to set internal deadlines. For instance, if your anniversary is December 1, plan to have a draft of license changes by early October. Setting reminders ensures you won’t scramble last-minute or, worse, forget to submit changes.
- Confirm True-Down Eligibility in Contracts: Keep a copy of your contract and the current Microsoft Product Terms handy. Well ahead of any reduction, double-check that each product you might reduce is allowed. If you spot any uncertainties, reach out to your Microsoft partner to confirm. It’s better to resolve questions now than during the hectic renewal period.
- Engage Finance and IT Early: A true-down isn’t just an IT exercise; it impacts budgets. Loop in your finance team on potential reductions and the expected cost impact. They might have input on how much cost savings is needed or how to allocate savings. Meanwhile, ensure that IT and HR are communicating effectively regarding personnel changes. This cross-team approach prevents surprises (like finance budgeting for savings that IT didn’t actually execute, or IT cutting licenses that someone still needed).
- Prepare Documentation for Submission: As the anniversary approaches, compile all the data and approvals needed for the true-down. This includes the list of licenses to reduce, internal sign-off from stakeholders, and any forms or portal entries required by Microsoft. Doing this a few weeks in advance gives you a buffer to resolve any issues. It also demonstrates to Microsoft that you are organized and serious about the changes, which can make the process smoother on their end.
- Monitor Post True-Down Outcomes: After executing the true-down, check that everything went as planned. Confirm user accounts that were supposed to be de-licensed have been removed or downgraded appropriately in admin portals. Ensure no one loses access unexpectedly (unless intended). Verify the new billing aligns with what you expected. If something is off, engage Microsoft immediately to correct it.
Using this checklist as part of your annual cycle will make true-downs routine. It instills discipline in tracking and adjusting licenses and ensures you capitalize on the flexibility an EAS provides.
Essentially, it’s about being proactive and organized so that you never pay for more licenses than you genuinely need.
Five Recommendations for IT Leaders
Finally, here are five high-level recommendations for IT leaders looking to optimize their Microsoft licensing through true-down rights:
- Choose EAS for Flexibility: If license count flexibility is critical to your organization, opt for a Microsoft Enterprise Subscription Agreement over a standard EA. The ability to true-down annually can save significant costs in environments where headcount or usage may decline. Don’t get locked into an ad-only agreement if you foresee any downsizing risks.
- Implement Governance for Tracking: Establish internal governance to track license allocation and usage continuously (at least quarterly). Treat licenses as assets that need monitoring. This practice will ensure you have accurate data when it’s time to true-up or true-down, and it prevents overspending due to forgotten or idle licenses.
- Align True-Down with Budget Cycles: Coordinate your true-down activities with your financial planning cycle. For example, if your fiscal year or budgeting process starts in July and your agreement renews in June, plan the reductions to feed directly into the new budget. By aligning these events, the savings from license reductions will be realized in the appropriate budget period and can be reallocated to other needs.
- Plan Reductions Well in Advance: Don’t wait until the last minute or just before renewal to start thinking about reductions. Begin planning a true-down a few months ahead of the anniversary. Early planning gives you time to gather usage data, get approvals, and deal with any complexities. It also gives you leeway to negotiate or clarify terms with Microsoft if needed. In short, treat true-down planning as a project, not a quick task.
- Leverage True-Down in Future Negotiations: Use the fact that you have true-down rights (and are willing to exercise them) as a bargaining chip in future contract negotiations. Microsoft knows that customers who actively manage their licenses might also consider alternatives. Showing that you won’t over-buy and will reduce when possible can pressure Microsoft to offer more competitive pricing or incentives to keep your business. Additionally, the savings you realize can be used to justify new investments or to negotiate added value in your next agreement (for example, “We saved X dollars by rightsizing, and we expect any new agreement to continue enabling those optimizations”). Essentially, demonstrate that you are a savvy customer – one who will only pay for what’s needed – and you’ll have a stronger footing at the negotiating table.
By following these recommendations, IT leaders can create a more agile and cost-effective licensing strategy.
Microsoft licensing doesn’t have to be a one-way ratchet upward.
With true-down rights in an EAS, you gain a measure of control to right-size your licensing as your organization evolves. Embrace that flexibility, plan diligently, and make Microsoft’s model work in your favor.
Read more about our Microsoft Negotiation Services.
