Microsoft 365 subscriptions range from $6 to $57 per user monthly, but that sticker price tells only part of the story. Add-ons like phone systems, AI features, and extra storage can push your actual cost 40-60% higher than the base subscription you initially budgeted.

Most organizations renew their Microsoft contracts without questioning whether they're paying market rates or could achieve better value through different plan combinations. This guide breaks down current pricing across all tiers, explains where hidden costs accumulate, and shows procurement teams how to benchmark their deals before signing another three-year commitment.

Microsoft 365 Prices at a Glance

Microsoft 365 subscriptions cost between $6 and $57 per user each month, with the price determined by which plan tier you select. Business plans start at $6 monthly for Basic (web apps only), climb to $12.50 for Standard (desktop apps included), and reach $22 for Premium (which adds security and device management). Enterprise plans begin at $10 monthly for E1, move up to $36 for E3, and top out at $57 for E5.

Here's what separates each tier from the next. Business Basic gives you browser-based versions of Office apps—think working entirely in Chrome or Edge without installing anything locally. Business Standard adds the desktop versions most people expect, like the full Excel with all its functions and offline Word. Business Premium layers on security tools that IT teams care about. Enterprise plans remove user limits and add compliance features that large organizations face in regulated industries.

Annual billing typically drops these prices by 10-15% compared to paying month-to-month. However, the sticker price represents just your starting point—most organizations end up paying more once they add phone systems, extra storage, or AI features.

Business and Enterprise Plans Explained

Business Basic

Business Basic gives you Word, Excel, PowerPoint, and Outlook through your web browser, along with 1TB of cloud storage per person. You get Teams for video meetings and chat, though meeting size caps at 300 participants. The catch? You can't install desktop applications, which means you're working entirely online. This works if your team mostly collaborates on simple documents rather than building complex financial models or graphic-heavy presentations.

Business Standard

Business Standard takes everything from Basic and adds desktop installations. You can now work offline on planes or in coffee shops with spotty wifi. The plan includes email hosting with 50GB mailboxes and lets you use your company's domain name. Microsoft limits this tier to 300 users, making it the go-to choice for small and mid-sized companies that want the complete Office experience without enterprise security bells and whistles.

Business Premium

Business Premium brings in Microsoft Intune for managing company phones and laptops, plus threat protection that blocks suspicious emails before they reach inboxes. You get tools to classify sensitive documents and control who can access them based on location or device health. Organizations handling customer data or operating under regulations like HIPAA often land here despite the higher cost—the security features become non-negotiable rather than nice-to-have.

Enterprise E1

Enterprise E1 removes the 300-user ceiling entirely, letting you license thousands of employees without switching plans. The tier includes eDiscovery and legal hold capabilities for lawsuits and audits but skips desktop app installations. You'll typically see E1 assigned to retail workers, call center staff, or warehouse employees who primarily use web tools and mobile devices rather than sitting at desks with full computers.

Enterprise E3

Enterprise E3 delivers desktop apps alongside enterprise compliance tools like Data Loss Prevention, which stops employees from accidentally emailing confidential files to the wrong people. You get Power BI Pro for building dashboards and reports, plus 100GB mailboxes instead of the 50GB in lower tiers. Most mid-sized and large organizations standardize on E3 as their baseline, only upgrading specific people to E5 when they truly need the premium features.

Enterprise E5

Enterprise E5 includes automated security responses that investigate and contain threats without human intervention, advanced analytics tools, and the Teams Phone System for making actual phone calls. You also get Azure Active Directory Premium P2, which adds identity protection and privileged access management. Organizations typically assign E5 selectively—executives, security teams, compliance officers—rather than giving it to everyone, since the cost nearly doubles from E3.

Microsoft Plans Office 365 Versus One-Time Licenses

Microsoft 365 subscriptions give you continuous updates and cloud storage, while one-time Office purchases like Office Home & Business 2021 for $250 include just the applications with no ongoing updates. The subscription costs $70-$150 yearly for personal use or $72-$264 per user annually for businesses, which means you break even around year two or three depending on which versions you compare.

Here's what most people miss about one-time licenses: you're frozen at that version forever. No new features, no compatibility updates, no security patches after a few years. Subscriptions keep you current with evolving file formats and security protocols, while perpetual licenses eventually become unsupported and risky to use.

The shift from "Office 365" to "Microsoft 365" in 2020 reflected Microsoft's expansion beyond just productivity apps into security and device management. Many people still say "Office 365" out of habit, and Microsoft itself uses both names in different contexts, creating confusion when you're trying to compare quotes or negotiate renewals.

Add-Ons Copilot AI and Hidden Costs

Teams Phone

Teams Phone replaces your desk phones and PBX system with cloud-based calling for $8 per user monthly on top of your base subscription. You'll also pay for a Calling Plan at $12-$20 monthly per user for domestic or international dialing, or connect your existing phone provider through Direct Routing. Organizations switching from traditional phone systems often underestimate the one-time costs—porting phone numbers, buying adapters for analog devices like fax machines, configuring network quality-of-service settings to prevent choppy calls.

Copilot AI Seat

Microsoft 365 Copilot adds AI assistance across Word, Excel, PowerPoint, Outlook, and Teams for $30 per user monthly. You can only add Copilot if people already have E3, E5, Business Standard, or Business Premium licenses, effectively doubling or tripling your per-person cost. Early adopters report that knowledge workers creating documents and analyzing data see real productivity gains, while frontline workers rarely justify the expense.

Advanced Security and Compliance

Beyond what comes with base plans, organizations often add:

• Microsoft Defender for Endpoint: Protects Windows, Mac, iOS, and Android devices for $5-$10 per device monthly

• Advanced eDiscovery: Uses machine learning to analyze content during legal cases, requiring E5 or separate licensing at roughly $10 per user monthly

• Customer Lockbox: Prevents Microsoft from accessing your data without explicit approval, included in E5 or available separately for $3 per user monthly

Security layers accumulate as organizations mature their compliance programs or face industry regulations. The cumulative effect can increase total costs by 20-40% above your base subscription price.

Additional OneDrive Storage

Each plan includes 1TB of storage per person, but organizations with video files, engineering drawings, or extensive archives blow through this limit quickly. Additional storage costs $0.20 per GB monthly, which translates to $200 per TB annually. Many procurement teams discover storage overages only during annual true-ups, resulting in surprise invoices that weren't budgeted.

Volume Nonprofit and Academic Discounts

CSP Tiered Pricing

Cloud Solution Provider partners offer volume discounts starting at 5-10% for 25+ seats, climbing to 15-20% for 100+ seats, and reaching 25-30% for deployments over 500 users. The discounts apply automatically through your partner's billing system without separate negotiation. Different CSP partners offer different rates though, so comparing quotes from multiple resellers before committing to annual terms can improve your pricing.

Enterprise Agreement Breakpoints

Enterprise Agreements require minimum commitments of 500 seats across all Microsoft products (not just Microsoft 365) and lock you into three-year terms with annual true-ups. Discounts typically start at 20-25% below list price and can reach 35-45% for organizations with 5,000+ users or significant Azure spending. Two organizations with identical user counts might pay substantially different rates based on their negotiation approach and total Microsoft spend.

Nonprofit SKUs

Qualified 501(c)(3) organizations receive up to 75% discounts on Business Premium and Enterprise E3 plans, with the first 10 licenses often free. Eligibility verification happens through Microsoft's nonprofit portal or TechSoup, requiring proof of charitable status and nondiscrimination policies. Nonprofit pricing represents one of the largest discount opportunities available, though the verification process sometimes creates friction.

Education SKUs

Accredited schools and universities access Faculty and Student pricing, with student licenses often free and faculty licenses discounted 50-80% from commercial rates. Faculty licenses (A3 and A5 tiers) mirror Enterprise E3 and E5 features but cost $2.50-$6.00 per user monthly. Educational institutions also get simplified licensing that allows device-based assignments for shared computer labs instead of tracking individual student accounts.

Three-Year Cost Forecast Worksheet

Accurate forecasting accounts for five variables beyond the base subscription price: headcount growth, feature adoption requiring plan upgrades, add-on services that become necessary over time, Microsoft's historical price increases, and currency fluctuation for international organizations.

Start by projecting your user count at six-month intervals using your hiring plan and typical attrition rates. Then identify which people truly need premium features versus those who can function on lower tiers. Many organizations discover that 60-70% of users can operate on Business Standard or E3 while only specialized roles require Premium or E5 capabilities.

Next, evaluate which add-ons you'll likely adopt over the next three years. Organizations typically add Teams Phone within 18 months of initial deployment, advanced security features within 24 months as compliance requirements mature, and Copilot AI selectively for high-value roles. Finally, build in a 5-8% annual escalation for price increases—Microsoft has historically raised prices every 12-18 months, and assuming flat pricing across three years consistently creates budget shortfalls.

How To Benchmark Your Microsoft Pricing Before Renewal

Market rate research means comparing your effective per-user cost against similar organizations with comparable size, industry, and feature requirements. Organizations in the 100-500 user range typically pay 15-25% below list price through CSP partners, while those with 500-2,000 users often achieve 25-35% discounts.

Procurement teams can validate pricing by requesting quotes from 2-3 alternative CSP partners 90-120 days before renewal, using competing offers as leverage with their current provider. The quotes reveal whether your existing discount aligns with current market rates or if you're overpaying relative to comparable organizations.

Freqens' benchmark functionality provides aggregated market data showing what similar organizations pay for Microsoft 365, letting procurement teams enter renewal discussions with concrete evidence rather than anecdotal comparisons. This data-driven approach transforms renewal conversations from subjective negotiations into objective pricing discussions.

Negotiation Levers Procurement Teams Should Know

Commit Term Length

Three-year commitments typically unlock 10-15% deeper discounts compared to annual agreements, though they reduce flexibility if your organization's needs change substantially. Microsoft and CSP partners prefer longer terms because they reduce churn risk and administrative overhead from annual renegotiations. Organizations experiencing rapid growth or potential mergers often find that annual terms with modest discounts provide better value than locked-in three-year pricing that becomes obsolete mid-contract.

Payment Schedule

Annual prepayment versus monthly billing creates a 10-15% cost difference. Microsoft discounts upfront payment because it reduces collection risk and improves cash flow predictability. Organizations with strong balance sheets can leverage annual prepayment as a negotiation point, requesting additional discounts in exchange for favorable payment terms.

SKU Consolidation

License optimization involves analyzing actual feature usage to identify people on premium plans who rarely access premium functionality. Organizations commonly discover that 20-30% of their E5 licenses can be downgraded to E3, or Business Premium users can shift to Business Standard, generating immediate savings of $10-$35 per user monthly without impacting productivity.

True-Up Versus True-Down

Enterprise Agreements traditionally required annual true-ups where organizations pay for user growth but couldn't reduce licenses for departing employees until the three-year term ended. Modern agreements increasingly include true-down provisions allowing quarterly or annual license reductions, though often with restrictions like maintaining 90% of the original commitment level.

Boost your negotiation performance with proven expert strategies.

When a Different Productivity Suite Is Cheaper

Google Workspace

Google Workspace costs $6-$18 per user monthly for comparable tiers, offering potential savings of 30-50% for organizations comfortable with Google's web-first approach. The platform works particularly well for companies with minimal legacy Microsoft Office dependencies and workforces accustomed to real-time collaborative editing rather than traditional desktop applications.

Migration complexity often offsets the subscription savings. Moving email, documents, and SharePoint sites to Google Drive requires specialized tools, consultant support, and user retraining that can cost $50-$150 per user as a one-time expense.

Zoho Workplace

Zoho Workplace bundles email, office applications, and collaboration tools for $3-$9 per user monthly, targeting small businesses and price-sensitive organizations. The platform includes CRM, project management, and other business applications in higher tiers, potentially replacing multiple tools. Zoho's smaller ecosystem means fewer third-party integrations and less robust admin controls compared to Microsoft or Google.

Open-Source Alternatives

LibreOffice and Collabora Online provide free desktop applications and self-hosted web-based editing with no per-user licensing costs. Organizations still face infrastructure, support, and maintenance expenses though. Total cost typically ranges from $5-$15 per user monthly when accounting for server hosting, IT support time, and productivity losses from compatibility issues with Microsoft Office file formats.

Take Control of Software Renewals With Freqens

Contract management platforms help organizations track renewal dates, benchmark pricing against market rates, and optimize software spend across their entire technology stack. Freqens centralizes every company contract with automatic alerts 90 days before renewal, giving procurement teams sufficient lead time to research alternatives, gather competitive quotes, and negotiate improved terms.

The platform's benchmark functionality provides aggregated market data showing what similar organizations pay for Microsoft 365 and other software, transforming renewal discussions from subjective negotiations into objective pricing conversations. Request a demo to see how Freqens helps organizations gain visibility into software contracts and make data-driven decisions about Microsoft 365 investments.

Frequently Asked Questions About Microsoft 365 Pricing

How often does Microsoft adjust subscription prices?

Microsoft typically reviews pricing every 12-18 months and has implemented increases of 5-8% in recent years, usually announced 3-6 months before taking effect for existing customers. New customers immediately pay current rates, while existing subscribers often receive grace periods before price changes apply to renewals.

Can organizations mix Business and Enterprise licenses within the same tenant?

Microsoft allows license mixing within a single tenant, enabling organizations to assign Business licenses to some users and Enterprise licenses to others based on specific needs. Certain Enterprise-only features like advanced compliance tools remain unavailable to users with Business licenses even when both license types coexist in the same environment.

What happens to data when downgrading Microsoft 365 subscriptions?

Data remains accessible in OneDrive, SharePoint, and Exchange, but features dependent on the higher-tier license become unavailable immediately upon downgrade. Downgrading from E5 to E3 disables Advanced eDiscovery access and removes Power BI Premium capabilities, though the underlying data stays intact and accessible through standard interfaces.