The 5 hidden ways you're overspending on Microsoft 365 (and how to fix them before July)

Your Microsoft 365 renewal just got more expensive. Prices jump 5% to 33% on July 1, 2026, depending on the SKU. But here's the part nobody's saying out loud: most organizations were already overspending before the increase was announced.

The price hike isn't the problem. The waste sitting in your tenant is.

We've spent years watching IT teams pay for licenses nobody uses, capabilities that overlap, and tiers that don't match how people actually work. The July deadline just makes the cost of ignoring all that harder to defend in a budget meeting.

We dug into this with Microsoft MVPs Noorez Khamis and Eric Overfield in our latest Pass the Mic webinar. This article builds on that conversation and breaks down the five patterns that drive nearly all Microsoft 365 license overspending. Not theory. Not a vendor pitch. Just the stuff we see every day in real tenants, with steps you can take before your next renewal lands.

TL;DR: Microsoft 365 prices rise up to 33% on July 1, 2026, but the bigger problem for most orgs isn't the price increase. It's the waste sitting in their tenant before the hike even lands. Five patterns drive nearly all M365 license overspending: inactive licenses still assigned to former employees, capabilities you're paying for twice, users on a tier they don't need, ungoverned add-ons no one tracks, and the lack of continuous visibility that lets all four compound. Fix these before your renewal and the price increase becomes a problem someone else has.

In this article:

• What's actually changing on July 1, 2026 (and what isn't)

• The real problem isn't the price increase, it's the waste already in your tenant

• Pattern 1: Licenses still assigned to people who aren't using them

• Pattern 2: You're paying for the same capability twice

• The wrong people are on the wrong tier

• Pattern 4: Add-ons no one is tracking

• Pattern 5: You can't see any of this in real time

• The 90-day plan before your next renewal

• FAQ

What's actually changing on July 1, 2026 (and what isn't)

Microsoft confirmed price increases across the majority of its Microsoft 365 and standalone SKUs, effective July 1, 2026. The range: 5% to 33% depending on the plan.

The affected list is long. E3, E5, Office 365 E3 and E5, Business Basic, Business Standard, Business Premium, F1, F3, EMS E3 and E5, Windows E3 and E5, Microsoft 365 Apps, and Entra ID P1 and P2 all see increases. You can review the full breakdown in Microsoft's pricing FAQ.

What's not going up: Copilot, standalone Teams, and the new E7 bundle.

Speaking of E7. It went GA on May 1, 2026, at $99/user/month. It bundles E5, Copilot, Agent 365, and the Entra Suite into a single SKU. If you're already paying for E5 plus Copilot separately, the math on E7 is worth running. More on that in our breakdown of the new licensing landscape.

One more thing to know. Microsoft's Extended Service Terms (EST) replaced the free grace period on May 4, 2026. If your subscription lapses and auto-renew is off, you'll now pay 3% above the monthly rate for continued service. No more free runway.

That's the pricing picture. Now let's talk about the part you can actually control.

The real problem isn't the price increase, it's the waste already in your tenant

A 5% to 33% price bump hurts. But it hurts a lot more when a quarter of those licenses aren't doing anything.

Industry estimates put the typical Microsoft 365 inactive license rate between 15% and 25% of total seats. Gartner's broader research pegs overall SaaS waste at 25% to 30% of total spend. Not Microsoft-specific, but directionally damning.

Think about that for a second. You're about to pay more per license. And somewhere between one in four and one in six of those licenses isn't attached to anyone who's actually using it.

The price increase is a headline. The waste is the real budget line.

We've seen this in tenant after tenant. The State of Microsoft 365 data confirms it. Overspending in Microsoft 365 doesn't come from one dramatic mistake. It comes from five quiet patterns that compound over time. Each one is fixable. Most organizations are running at least three of them right now.

Here's what to look for.

Pattern 1: Licenses still assigned to people who aren't using them

This is the biggest category. Every time.

Someone leaves the company. Their account gets disabled. Their license stays assigned. Six months later, you're still paying for an E5 seat nobody will ever use again. Multiply that by every departure, every contractor who wrapped up, every role change that didn't trigger a license review.

The tricky part: "inactive" isn't the same as "departed." You've got users who are still employed but haven't touched Exchange, Teams, SharePoint, or OneDrive in 90 days. Maybe they shifted to a different role. Maybe they're on extended leave. Maybe they just never needed E5 in the first place.

How to find it. In the Microsoft 365 admin center, go to Reports, then Usage, then Microsoft 365 active users. Filter by last activity date. Sort descending. You'll see the gap immediately.

The problem with that approach: it's a point-in-time snapshot. You run the report, export the CSV, clean up what you can, and three months later the drift is back. That's the cycle most admins are stuck in.

ShareGate Protect takes a different approach. Its license report shows you every purchased, assigned, and unassigned seat in one view, so you know exactly where you're paying for seats nobody's touching. It flags inactive users, so you can stop guessing who left and start reclaiming. It surfaces Copilot license inclusion, so you're not double-checking which seats have it bundled. The full picture, without stitching together admin center exports.

Here's what it won't do: automatically reclaim or reassign those licenses for you. That decision belongs to a human who understands the context. Is that user on parental leave? Did they just change teams? Protect shows you the data. You make the call.

Honest about the tool. Honest about the problem. That's how this works.

Pattern 2: You're paying for the same capability twice

This one's subtle. And expensive.

Microsoft 365 SKUs bundle features in overlapping ways. You might be paying for E5's advanced security features and a standalone Entra ID P2 license for the same user. Or running E5 across the board while also paying for standalone Power BI Pro, which is already included in E5.

Common overlaps we see:

• Entra ID P2 + E5. E5 includes Entra ID P2. If you're assigning both, you're double-paying.

• Power BI Pro + E5. Same story. E5 bundles it in.

• Teams Phone + E7. If you're moving to E7, check whether your standalone Teams Phone licenses are still needed.

• EMS E3/E5 + M365 E3/E5. Many EMS capabilities are already included in the M365 bundle. But standalone EMS licenses don't always get cleaned up after an SKU migration.

The fix is a contract-level audit, not a user-level one. Pull your license purchase history from the Microsoft 365 admin center. Map each standalone SKU against the capabilities already included in your primary bundle. Flag the overlaps.

It's unglamorous work. Nobody puts "deduplicated license SKUs" on their LinkedIn. But at $57/user/month for E5 (post-July pricing), even 50 redundant seats add up to real money fast.

Pattern 3: The wrong people are on the wrong tier

Here's a question most organizations can't answer: how many of your E5 users actually need E5?

E5 costs roughly 60% more than E3 per user. That premium buys you advanced security and compliance: Defender for Office 365, Purview Advanced Audit, Entra ID P2. You also get Power BI Pro and Teams Phone. Serious capabilities. But not everyone needs them.

A frontline worker checking schedules in Teams doesn't need E5. An exec who lives in Outlook and Word doesn't need E5. A department that exclusively uses SharePoint for file storage probably doesn't need E5 either.

The concept behind fixing this is persona-based licensing. Group your users by how they actually work, not by department or seniority. A few common personas:

• Information worker. Lives in Teams, SharePoint, Outlook, uses co-authoring heavily. Likely needs E3 or E5 depending on security requirements.

• Frontline worker. Shift-based, mobile-first. F1 or F3 is usually enough.

• Power user. Needs advanced analytics, compliance tools, or eDiscovery. E5 is justified.

• Light user. Only checks email and the occasional Teams message. Business Basic or E1 may be sufficient.

The challenge is that no tool will do this mapping for you automatically. Not Protect. Not anything else on the market that's being honest about it. Automated tier rightsizing requires context that only a human who knows the organization can provide. Which departments have regulatory obligations? Which teams are piloting Copilot? Which users need eDiscovery hold?

What you can do is combine usage data (admin center reports or Protect's inactive user data) with your own knowledge of roles and requirements. Build the persona map. Test a tier change with a pilot group. Roll it out.

If you're evaluating the new E7 bundle at $99/user/month, this mapping becomes even more critical. E7 bundles E5, Copilot, Agent 365, and the Entra Suite. For users who need all four, it's a better deal than buying them separately. For users who only need E3, it's a 4x overspend. Know who needs what before you sign. Our price increase overview digs deeper into the E3 vs. E5 vs. E7 math.

Pattern 4: Add-ons no one is tracking

Every Microsoft 365 tenant has a drawer full of forgotten add-ons. You know. The ones somebody purchased for a project two years ago and nobody remembered to cancel.

Common offenders:

• Visio Plan 2. Purchased for a process mapping initiative. The initiative ended. The licenses didn't.

• Project Plan 3 or Plan 5. Same story, different project management tool.

• Extra Exchange Online storage. Provisioned during a mailbox migration. Never deprovisioned.

• Power Automate per-flow plans. Spun up for a department automation. The flow broke. The license remained.

• Third-party add-ons billed through Microsoft. Marketplace purchases that show up on your Microsoft invoice but don't get the same scrutiny as core licenses.

The root cause is ownership. Core M365 licenses usually have a clear owner (IT, the M365 admin). Add-ons often don't. They get requested by a department, approved in a procurement tool, and then disappear into the invoice.

The fix starts with an inventory. Pull your complete subscription list from the admin center. For each add-on, ask three questions: Who requested it? Is anyone actively using it? What breaks if we remove it?

If nobody can answer question one, you've found your waste.

Pattern 5: You can't see any of this in real time

Here's the pattern that makes the other four possible.

You can run a license audit once a quarter. You can export CSVs and build pivot tables. You can PowerShell your way to a point-in-time snapshot. And three months later, you're right back where you started. New hires got E5 by default. A department added 30 Visio licenses. Guest accounts accumulated. Inactive workspaces kept consuming storage.

Without continuous visibility, every cleanup is temporary.

This is where ShareGate Protect earns its keep. It gives you a single view of your Microsoft 365 tenant, so you stop hopping between admin centers to piece together a story that should be obvious. Licensed users, active workspaces, inactive workspaces, storage consumption, governance risk. One place. No PowerShell scripts. No CSV exports that are outdated by the time you open them.

Protect's governance risk assessment surfaces oversharing and sprawl across your Teams, SharePoint sites, Microsoft 365 Groups, and OneDrive accounts. When you can see which workspaces are inactive and which users haven't logged in, the license conversation stops being guesswork.

The bulk cleanup actions let you act on what you find without scripting. Archive inactive workspaces to Azure Storage. Fix oversharing directly from the insight where it appears. No admin-center hopping. No context switching.

And the cost trend tracking means you can actually show Finance whether your cleanup efforts are holding. That's the part that makes this sustainable instead of a one-time fire drill.

One caveat. Protect shows you the waste. It doesn't reassign licenses or enforce policies automatically. You still make the decisions. But you make them with data instead of gut feel, and you make them in minutes instead of days. For most M365 admins, that's the difference between "we should probably audit our licenses" and actually doing it.

The 90-day plan before your next renewal

You've got the patterns. Here's the playbook. Five actions. Ninety days. No excuses.

1. Week 1: Run the inactive license sweep. Pull usage data from the admin center (or connect Protect for continuous tracking). Flag every user with zero activity in the last 90 days. Separate departed users from active-but-idle. Reclaim what's obvious. Investigate the rest.

2. Week 2–3: Deduplicate your SKUs. Map standalone add-ons against what's already bundled in your primary licenses. Kill the overlaps. Check Entra ID P2, Power BI Pro, and EMS against your E3 or E5 entitlements.

3. Week 4–6: Build your persona map. Group users by how they work, not where they sit on the org chart. Match each persona to the right license tier. Pilot one department first. Document the savings before you roll it wider.

4. Week 7–8: Audit your add-ons. Pull the full subscription list. Find the orphans. Ask who owns them. If nobody answers, you know what to do.

5. Week 9–12: Set up continuous monitoring. A quarterly CSV export isn't governance. It's archaeology. Get a tool that shows you drift in real time so you're not starting from scratch every quarter.

The July 1 price increase is coming regardless. What you pay on that new rate is still up to you.

If you want to see where your tenant stands before your renewal, start with the cost optimization overview. Or skip straight to the hands-on experience: see Protect in action or start a free trial.

For the full picture on what's changing with Microsoft 365 pricing and packaging, head to our price increase hub.