Microsoft 365 is the largest single line item in the technology budget for most organisations. It is also the one most organisations have never properly optimised.
The typical organisation overpays for Microsoft 365 by 20-40%. At £22/user/month for E3, that means an organisation with 200 employees is likely wasting £1,056-£2,112 per month — £12,672-£25,344 per year.
Why Microsoft 365 waste is so common
Microsoft 365 licences are purchased in blocks and auto-renew. When employees leave, their licences persist unless explicitly reassigned or cancelled. When roles change, nobody downgrades from E3 to E1. When teams shrink, contracts don't.
The result is a steady accumulation of overpayment that grows with every headcount change and never self-corrects.
What Azure AD usage data tells you
Azure AD (now Microsoft Entra ID) holds usage data for every Microsoft 365 product. Via the Microsoft Graph API, you can access:
**Active user counts per product.** How many users actively used Teams, Exchange, SharePoint, OneDrive, and other products over the past 7, 30, or 90 days.
**Assigned vs active ratio.** For each product, the number of assigned licences versus the number actually in use. This is the key metric for identifying overpayment.
**Sign-in activity.** When individual users last authenticated. This identifies accounts that are assigned licences but have not logged in for months — often departed employees or role changes.
The audit process
**Step 1: Pull your current licence inventory.** Via the Microsoft 365 admin centre or Azure AD, export your current licence assignments: how many of each SKU (E1, E3, E5, Business Premium) you hold, at what price, and when they renew.
**Step 2: Pull usage data.** Via Azure AD usage reports, export active user counts for each Microsoft 365 product over the past 30 days. The comparison between assigned licences and active users is your first measure of waste.
**Step 3: Identify inactive accounts.** Cross-reference your licence assignments against sign-in activity. Any account that has not logged in for 30+ days is a candidate for licence reclamation. Any account that has not logged in for 90+ days should be reviewed and almost certainly deprovisioned.
**Step 4: Identify downgrade opportunities.** Not everyone needs E3 or E5. Review which features each user actually uses and whether a lower tier would meet their needs. Moving 50 users from E3 (£22/user) to E1 (£7.10/user) saves £745/month.
**Step 5: Calculate the right-sized contract.** Based on actual usage data, calculate the number of licences you actually need for each SKU. The difference between your current contract and the right-sized contract is your renegotiation target.
Automating the process
Manual audits of this kind are time-consuming and need to be repeated regularly as headcount changes. The automation approach is to connect Azure AD to a technology intelligence platform that runs this analysis continuously.
OTIS connects to Azure AD via OAuth, pulls aggregated usage data (active users per product, assigned vs active ratios), and surfaces inactive licences as findings automatically. When a user goes inactive for 30 days, it appears in your OTIS findings as a recoverable licence with a calculated annual saving.
What to expect from a Microsoft 365 optimisation
For a 200-person organisation spending £52,800/year on Microsoft 365 E3:
- Inactive licences (10-15% typical): £5,280-£7,920/year recoverable - Downgrade opportunities (E3 to E1 for light users, 20-30% typical): £14,400-£21,600/year recoverable - Total recoverable: £19,680-£29,520/year
The conversation with Microsoft is straightforward once you have the data. They know that customers with usage data are better negotiators. Presenting a right-sized contract with usage data to support it typically results in a 10-20% reduction even before any downgrade of SKUs.
Automate this analysis with OTIS
Connect your accounting system and identity provider. OTIS runs this analysis automatically and surfaces findings as they emerge.
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