Microsoft True-Up vs. True-Down: Managing License Counts in Your EA

Microsoft True-Up vs. True-Down

Introduction – Why True-Up and True-Down Matter

Microsoft Enterprise Agreements (EAs) include mechanisms called True-Up and True-Down that directly impact your organization’s software costs.

In plain terms, a True-Up is an annual reconciliation where you add licenses to cover any usage growth, while a True-Down is the option to reduce license counts (and costs) if your usage decreases. Read our Microsoft Enterprise Agreement Negotiation Guide.

These terms are critical levers in EA cost management: one generally locks in spending upward, and the other (when available) provides flexibility to scale down.

Understanding how each works is essential for avoiding budget surprises.

In short, True-Ups can inflate your spend if not managed carefully, whereas True-Downs (where permitted) are a rare chance to trim costs when your needs shrink.

This article explains how they work, how to negotiate better terms, and strategies to protect yourself as the customer.

True-Up in a Standard EA

In a standard Microsoft EA, you commit to a set number of licenses for a three-year term. The True-Up process is how you handle growth during that term.

At each yearly anniversary of the EA, you must report any additional licenses you deployed beyond your initial quantity.

Microsoft will then bill you for those extra licenses on a pro-rated basis for the remainder of the term.

For example, if you started with 1,000 licenses but your organization grew to 1,200 users, you are required to “True-Up” by adding and paying for those 200 additional licenses at year’s end.

These added licenses typically become part of your new baseline and are locked in for the remainder of the EA.

Importantly, if your usage decreases, standard EAs do not recognize decreases mid-term – you’re still on the hook for the original quantity.

In essence, the True-Up process only works one way (upward), ensuring Microsoft gets paid for growth, while any reduction in need won’t lower your cost until the EA expires.

This one-way ratchet can lead to surprise costs if not monitored. Companies sometimes discover at True-Up time that they’ve deployed far more licenses than anticipated – resulting in an unbudgeted bill.

Additionally, once you pay for those extra licenses, Microsoft often treats that higher count as the new normal.

You cannot scale back down in a standard EA; the cost is carried forward.

This is why managing True-Ups is so important: without oversight, they can inflate your spend dramatically and set you up for an even larger renewal commitment.

Consider all options, EA Renewal vs. Switching to CSP: Evaluating Your Microsoft Licensing Options.

Negotiating True-Up Terms

While Microsoft’s default True-Up terms favor them, you can negotiate provisions in your EA to protect your interests.

Here are some key tactics for True-Up negotiations:

• Lock In Your Discounts: Ensure any new licenses added via True-Up carry the same discount percentage as your initial order. All True-Up units should be priced at your negotiated EA rate, not at the full list price. Get it in writing that added licenses will honor the original unit pricing or discount, so Microsoft can’t charge a premium for growth.
• Negotiate a Growth “Buffer”: Try to include a grace allowance for growth. For example, you might negotiate that the first 5% of user/license growth requires no immediate payment until renewal. This buffer acts as a safety net for minor fluctuations. Essentially, small increases in usage wouldn’t trigger an immediate True-Up charge, giving you breathing room. Microsoft may not volunteer this, but it’s a point worth pushing – even a modest buffer (say, 5% of the initial count) can prevent nickel-and-dime charges for trivial growth.
• Align with Your Fiscal Calendar: If possible, align the True-Up reporting and billing cycle with your company’s fiscal year or budgeting cycle. For instance, if your fiscal year ends in June, you might negotiate the EA anniversary to fall in July. This way, any True-Up costs can be anticipated in the proper budget year. At minimum, coordinate internally so that the True-Up timeline doesn’t blindside your finance team – knowing when that bill will hit is half the battle in avoiding budget surprises.
• Clarify Scope of Discounts: Be clear about which products and add-ons your negotiated discounts apply to. Microsoft EAs often have a Price Sheet or Product Selection Form listing all the SKUs you’re buying. If you think you might add a new product mid-term (say a new Microsoft 365 add-on, security product, or Azure service), negotiate pricing for those upfront. Push for any future add-ons to be included in your discount structure. Otherwise, if you add a product that wasn’t originally in your EA, Microsoft might charge closer to the list price. Ensure the agreement states that any additional licenses – even for new product categories – get discounted or at least come with a pre-agreed price.

By addressing these points in negotiations, you transform the True-Up from an open-ended risk into a more predictable and manageable process.

Microsoft sales reps may resist concessions here, but remember: as the customer, you have leverage (especially at renewal time). It’s reasonable to ask for terms that keep your costs predictable and fair over the EA term.

Avoid these: Top 5 Microsoft EA Negotiation Mistakes and How to Avoid Them.

True-Down Options – When Reduction is Possible

Standard EAs are designed to count up, not down. True-Downs (reducing license counts) are generally not allowed in a classic EA with perpetual licenses.

If you purchase 1,000 licenses enterprise-wide and later only need 900, you unfortunately cannot drop the 100 and pay less in the middle of your term.

You’ve essentially bought those licenses for the duration (and in the case of perpetual licenses, you own them even after the EA).

The EA model assumes your usage either stays flat or grows – any unused licenses just become “shelfware” until the agreement ends.

However, there are scenarios where True-Downs become possible by choosing a different agreement type or structure:

• Enterprise Subscription Agreement (EAS): Instead of a perpetual EA, Microsoft offers a subscription-based EA. In an EAS, you don’t own the licenses outright; you subscribe to them for the term. The benefit is that you have annual True-Down rights: at each anniversary, you can reduce your license counts for the next year if your workforce or usage has decreased. For example, if you had 1,000 users in Year 1 and dropped to 900 in Year 2, an EAS would allow you to adjust and pay for 900 in the second year. This flexibility is a trade-off – you give up perpetual ownership of licenses in exchange for the ability to scale down costs if your needs shrink. For organizations expecting potential layoffs, divestitures, or usage drop-offs, an EAS can be a smart choice to avoid overpaying for licenses you no longer need.
• Cloud Subscription Services (Microsoft 365, Azure, etc.): Many cloud services under an EA operate on subscription terms as well. Generally, for cloud services like Microsoft 365 (Office 365) or Dynamics 365, you commit to a certain number of user subscriptions, which can be adjusted at renewal time. During the annual term of those subscriptions, you usually cannot reduce the count until the next renewal cycle (annual or end-of-EA, depending on how it’s structured). In other words, if you subscribe to 1,200 Office 365 E3 licenses in your EA, you’re obligated to that number for the year, but come the next anniversary, you could potentially renew fewer licenses if you don’t need as many. Some cloud services might allow mid-term reductions if specifically negotiated. Still, the default is no mid-year true-down on those subscriptions either – you’re locked in for that billing period. The key difference is that, unlike perpetual licenses, these cloud subscriptions simply expire if not renewed so that you won’t carry unwanted licenses beyond the term.
• Cloud Solution Provider (CSP) Program: Outside of a formal EA, Microsoft’s CSP program (sold via partners) offers monthly subscription flexibility. In a CSP model, you can typically add or remove licenses on a month-to-month basis. This is the ultimate True-Down flexibility – you can reduce license counts any given month and pay less in the next billing cycle. CSP isn’t exactly part of your EA, but it’s an alternative licensing channel to keep in mind if flexibility is a top priority. Often, organizations with fluctuating needs might put core stable licenses in an EA and use CSP for variable or uncertain needs, since CSP lets you true-up or true-down almost in real-time.

Note: True-Down flexibility usually comes at the cost of higher unit prices or a lack of ownership. Microsoft doesn’t give the option to reduce commitments easily because it wants to secure revenue.

If you insist on the ability to scale down, you either pay a premium for that flexibility (as with CSP’s potentially higher per-license cost) or you opt for subscription agreements where Microsoft knows it can turn off your access if you stop paying.

It’s a trade-off every organization must consider. If you value cost certainty and own-it-forever licenses, a traditional EA locks you in (with the downside of paying for unused capacity).

If you value agility and the option to downsize, look at an EAS or cloud subscriptions, accepting that you’re essentially renting your licenses.

Tracking and Forecasting License Usage

The best way to avoid True-Up sticker shock (and to make informed decisions about needing True-Down flexibility) is proactive tracking of your license usage.

It’s crucial to establish internal governance for tracking the deployment of licenses versus the number purchased.

Here’s how to stay on top of it:

• Conduct Regular Internal Audits: Don’t wait for the annual True-Up to discover how many licenses you’re using. Perform quarterly (or at least mid-year) license reviews. Check your Microsoft 365 admin portals, Azure usage reports, and any software deployment tools to see current active users and installations. This routine helps catch any surge in usage early. For example, if Q2 shows that a new project onboarded 100 extra users with Office 365, you’ll know a True-Up cost is looming and can plan for it (or take action to curtail unneeded usage).
• Align IT, HR, and Procurement Processes: Ensure that when employees join or leave, or when new teams deploy Microsoft software, the relevant personnel are informed. HR should notify IT and licensing admins of staffing changes so licenses can be reassigned or reclaimed promptly. Similarly, if a department decides to enable a new Microsoft service or feature (such as Power BI or an advanced security add-on), loop in the procurement or licensing team first. This coordination prevents scenarios where, for example, hundreds of licenses remain assigned to departed staff or a team turns on a paid feature without budgeting for it. Good communication can prevent “license creep” that leads to surprise True-Up fees.
• Forecast and Budget: Use your usage data to forecast future needs. If your company plans a hiring spree or a new project rollout, anticipate the license growth and budget for it. Conversely, if you foresee downsizing or project completions, note when you might be able to reduce counts (at renewal or in an EAS context). The goal is no surprises – True-Up costs should be something you saw coming. A worst-case scenario is discovering at the EA anniversary that you owe Microsoft a six-figure sum because nobody tracked that 300 more Windows Servers were installed or that your Office 365 active users skyrocketed. Regular tracking and forecasting turn True-Ups from unpredictable bills into planned expenses.

By treating license management as an ongoing task rather than a once-a-year scramble, you maintain control.

You can then make conscious choices, like deciding whether to early-purchase some licenses (to avoid a massive lump-sum True-Up) or pushing certain deployments to the next term if budget is tight.

In short, stay informed about your license usage — it’s far cheaper and easier to adjust course quarterly than to be hit with a huge reconciliation annually.

Switching to Subscription Models

The landscape of Microsoft licensing is shifting. Many organizations are transitioning from traditional perpetual licensing under EAs to more flexible subscription models (like Microsoft 365 cloud services, Azure consumption, etc.).

It’s important to understand how this shift affects your ability to adjust license counts:

Under a classic EA, as discussed, you’re locked into a certain number of perpetual licenses until renewal. But with cloud and subscriptions becoming the norm, Microsoft itself is promoting models that have built-in adjustment points.

For instance, if you’ve moved to Microsoft 365 (Office 365) licenses, you might be on an annual subscription that coincides with your EA. Each year, you could potentially increase or decrease those subscription seats on your anniversary.

Similarly, Azure services are often consumption-based – you pay for what you use, and if you use less one month, you pay less that month (though if you committed to a certain annual spend in an EA, there could be a minimum, so watch out for that in your contract).

So what’s the benefit? Subscription models can offer more frequent flexibility.

An Enterprise Agreement can be structured to include these subscriptions.

Still, you might also consider alternatives: for example, instead of putting all your cloud services in a rigid EA, you could choose a Cloud Solution Provider (CSP) plan for some services to take advantage of monthly scaling. CSP licenses for Microsoft 365 allow you to true-up or true-down month-to-month.

The trade-off may be cost; CSP pricing might be slightly higher per license than a heavily discounted EA rate.

However, the ability to avoid paying for unused licenses for even part of the year can make it worth it, especially if your user count fluctuates or you’re piloting new services.

When negotiating your future licensing approach, consider your organization’s trajectory:

• If you expect consistent growth and stable usage, a traditional EA (or an EA with cloud subscriptions baked in) can work, with the usual True-Up process for adding more.
• Suppose you expect volatility (mergers, divestitures, dynamic staffing, or project-based usage that could go up and down). In that case, pushing for an EAS or leveraging CSP for certain components might save money in the long run.

Also, keep in mind Microsoft’s own strategy: they are pushing customers towards cloud subscriptions. Use that to your advantage.

For example, if you’re renewing an EA, you could say: “We’re considering moving XYZ workload to a monthly CSP model because we need flexibility.”

Microsoft, eager not to lose that business to a partner-driven CSP sale, might respond with better EA terms (perhaps a shorter commitment on that product or a special concession) to keep you in the EA.

The key is to remind Microsoft that you have options. The days of having no choice but a monolithic EA are over; the plethora of subscription offerings means you can mix and match models.

That opens up negotiation opportunities to tailor an agreement that fits your flexibility needs.

Table – EA True-Up vs. True-Down at a Glance

To summarize the key differences between True-Up and True-Down mechanisms across various Microsoft agreement types, here’s a quick comparison:

(Flexibility Score is a relative indicator of how easily you can adjust license counts – higher means more flexible for scaling up or down.)

Checklist – Avoiding True-Up and True-Down Surprises

Use this checklist to make sure you’re covering your bases and won’t be caught off guard by True-Up costs or lack of True-Down options:

• ✓ Audit current usage before renewal. Always review how many licenses are actually in use well ahead of your EA renewal date. This lets you plan any True-Down (license reductions) at renewal and avoid renewing unnecessary licenses.
• ✓ Secure discounts for True-Ups in writing. Don’t assume added licenses will be cheap – ensure your contract explicitly states that True-Up licenses use the same discounted price as your initial order. No unwelcome surprises at true-up time!
• ✓ Ask for buffer thresholds or pools. Try to negotiate a small “free” growth margin (e.g., up to 5% user growth) that won’t immediately cost you extra. This cushion can save you money for minor increases and shows Microsoft you’re savvy about not paying for trivial changes.
• ✓ Consider EAS if downsizing risk is high. If your organization might shrink or if you’re unsure about future needs, an Enterprise Subscription Agreement (or other subscription model) could be safer. It gives you annual exit ramps to drop licenses rather than being stuck with surplus licenses for three years.
• ✓ Track license deployment quarterly. Internally, treat license management as an ongoing task. Check every quarter that your deployed licenses align with purchased quantities. Catching a trend early (like usage creeping up or down) allows you to respond – either by true-up budgeting or reallocating licenses – long before it becomes a financial headache.

By following these steps, you can avoid the classic pitfalls of enterprise licensing.

The checklist above emphasizes proactivity: knowing your usage, locking in fair terms, and choosing the right agreement type all ensure you won’t be unpleasantly surprised by a giant bill or a rigid contract when things change.

Negotiation Angle

Negotiating with Microsoft can feel like an uphill battle – their agreements are notoriously rigid – but remember that everything is negotiable if you have leverage.

Here are some angles to strengthen your position:

• Concessions Even in a Locked EA: If you’re mid-term in an EA and realize it’s too inflexible, you’re not entirely without options. You can negotiate side agreements or future concessions. For example, if you had an unexpected hiring freeze and are now over-licensed, talk to your Microsoft rep about it. While they won’t reduce your count mid-term, they might offer a discount on future renewals or allow you to apply the value of unused licenses to another product. Microsoft would rather find a compromise than lose you as a customer at renewal, so don’t be afraid to raise the issue.
• Plan EA vs. CSP as a Bargaining Chip: Let Microsoft know you’re evaluating the CSP route for more flexibility. If downsizing or fluctuating needs are a concern, mention that a long-term EA without True-Down doesn’t fit your business model and that you might shift some services to monthly subscriptions. The mere possibility of moving spend out of the EA can pressure Microsoft to sweeten the deal. They could respond with, say, a flexible cancellation clause for a certain percentage of licenses, or better pricing, to keep you on the EA. Use the existence of more flexible alternatives in the market (even within Microsoft’s own ecosystem) as leverage.
• If Downsizing Is Likely, Insist on Flexibility: During negotiations (especially at renewal), be upfront if you anticipate workforce reductions or organizational changes. Push for an Enterprise Subscription Agreement or add a True-Down clause for specific scenarios. For instance, a clause that allows you to reduce up to X% of licenses if you divest a business unit or have layoffs above a certain threshold. Microsoft may not readily agree, but if the deal is significant, they sometimes grant exceptions (especially for things like unforeseen economic downturns or mergers/spinoffs). You won’t get what you don’t ask for – the contract can include custom terms if both parties sign them, so it’s worth trying.
• Leverage Multi-Year Commitments for Perks: If you’re committing to a big three-year spend, use that to negotiate not just price, but terms. For example, “We’ll agree to this many licenses, but we want the first 3% growth free each year,” or “We need an option to swap out Product A for Product B if our strategy changes.” Microsoft, eager to lock in a large commitment, might concede to one or two such asks. Always remember, the best time to gain flexibility is before signing. After the ink is dry, Microsoft knows you’re stuck. During negotiations, make flexibility a key request, alongside price.
• Document Everything: Any concessions or special terms you negotiate – whether it’s a discount, a buffer, or a right to reduce under certain conditions – get it documented in the contract or an addendum. Verbal assurances from a rep mean nothing if they’re not in the EA paperwork. Microsoft’s memory can be short when personnel changes or when compliance teams come knocking, so make sure the agreement language reflects every promise.

Negotiation is about protecting the buyer’s interests in an otherwise seller-favoring contract. Microsoft’s default EA terms assume steady or increasing consumption; it’s on you to inject reality and flexibility into that picture.

By being willing to push back and demonstrating that you know your options, you can often win concessions that save your company significant money or headaches in the long run.

FAQs

Q: Can we reduce licenses mid-term in a standard EA?
A: No, in a traditional Enterprise Agreement, you generally cannot reduce your license count during the term. Once you commit to a quantity (and especially after any True-Ups that increase that quantity), that becomes your minimum billable number for the remainder of the EA. The only way to “True-Down” in a standard EA is to wait until the end of the 3-year term and renew with a lower count (or not renew those licenses at all). The exception is if you signed an Enterprise Subscription Agreement (or negotiated a special clause) that explicitly allows annual reductions. Otherwise, mid-term decreases aren’t allowed. Plan accordingly if there’s a chance your needs will drop – you’d want a subscription model or a negotiated term in place to handle that.

Q: Are True-Ups always charged at list price, or our negotiated price?
A: If negotiated correctly, True-Ups should honor your negotiated price/discount. Microsoft’s EA normally fixes the pricing for added licenses in a pricing annex or “future pricing” table at signing. This means any additional license you True-Up should cost the same as your original ones (prorated for the time left in the term). However, if you don’t pay attention, you might find certain additions (especially brand-new products that weren’t in your EA) could default to higher prices. Always double-check that your EA documents lock in the unit prices or discount levels for any True-Up quantities. Don’t assume Microsoft will automatically give you your original discount if the product wasn’t initially included – you might need to negotiate that upfront.

Q: How does True-Down differ in an Enterprise Subscription Agreement (EAS) vs. CSP?
A: Both EAS and CSP offer ways to reduce licenses, but the timing and structure differ. In an Enterprise Subscription Agreement (EAS), you can True-Down once per year on the anniversary. That means you commit to a certain number for the year, and at the yearly True-Up/True-Down point, you can lower (or increase) your subscription counts for the next year. In contrast, Cloud Solution Provider (CSP) licensing is offered on a pay-as-you-go, monthly basis. Through CSP, you can add or remove users every month with no long-term commitment – you’ll just pay for what you used in that month. EAS gives you flexibility on an annual cycle, whereas CSP gives you much more granular flexibility continuously. However, CSP is outside the EA and may have a different cost structure (often monthly prices, possibly slightly higher per unit). In contrast, EAS keeps you within the EA framework with annual adjustments. Essentially, EAS is a compromise between rigidity and flexibility (yearly corrections), and CSP is maximum flexibility (anytime adjustments), often used for smaller-scale or variable needs.

Q: Can True-Up timing or frequency be negotiated?
A: The standard EA requires a True-Up once per year (at each anniversary date) – that’s a given. You can’t really change it to skip years, as Microsoft insists on annual reconciliation. However, you may be able to negotiate certain timing aspects, such as aligning the True-Up due date with a specific month that suits your budgeting needs. Some organizations negotiate to have their EA anniversary in a quarter that matches their financial planning cycle. As for frequency, while you won’t eliminate the annual requirement, you could self-impose more frequent internal true-ups (quarterly internal checks) as discussed earlier. Still, those are for your benefit, not something Microsoft contractually enforces. Microsoft will happily accept True-Up orders more frequently (you could submit additional orders mid-year if you wanted to license something immediately). Still, they won’t usually require more than the annual report. One thing to clarify in negotiations is the window you have to report and pay the True-Up after the anniversary (some agreements might give a few weeks’ grace to finalize counts). In summary, the cadence is pretty fixed annually by Microsoft, but you can try to align the dates favorably. If you truly needed a different structure (say, semi-annual true-ups), that would be highly unusual and would require a bespoke agreement addendum – not something Microsoft offers out of the box.

Q: What happens if we under-report usage or miss a True-Up?
A: Failing to accurately report your usage (i.e., under-reporting) is a compliance breach. In the short term, nothing might happen – Microsoft relies on you to be honest in the self-report. But if they audit you (and they can audit customers they suspect are out of compliance), any undisclosed over-usage will come to light. The consequences can include a hefty back payment for those licenses (often at list price or with penalties since they weren’t properly reported), and it can sour your relationship with Microsoft. In extreme cases, under-reporting could even lead to legal consequences under the terms of the contract; however, it typically results in an urgent requirement to purchase the necessary licenses retroactively. Additionally, if you “miss” a True-Up entirely, Microsoft will not consider that acceptable – you don’t get to skip it. They will likely press you to provide the numbers and settle any owed fees promptly, possibly with interest for late payment. It’s far better to stay in front of it: if you realize you made a mistake in reporting, come clean and work with Microsoft on a plan to rectify it (maybe as part of a renewal negotiation). Being transparent and proactive can turn a potential compliance issue into a more routine transaction. However, trying to hide usage to save money is playing with fire – Microsoft has many ways to detect it (support cases, product telemetry, etc.), and the cost of being caught will outweigh any short-term savings. Always better to manage licensing above board and use the negotiation and flexibility tactics discussed to control costs legitimately.

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