If you’ve ever looked at Microsoft 365 licensing and thought, “Why does this feel more complicated than it should be?” — you’re not alone. From Business and Enterprise plans to add-ons, security bundles, and ever-changing prices, choosing the right Microsoft 365 licence can quickly turn into a headache for IT teams and finance leaders alike.
But getting it right matters: the wrong plan can mean overspending, missing features, or frustrating users.
Let’s break down Microsoft 365 licensing: the plans, pricing, and common pitfalls to avoid.
Microsoft 365 plan families and key plans
Microsoft 365 licensing is grouped into four main families: Business, Enterprise, Education, and Government. Each is built for a different type of organisation, from small businesses to global enterprises and public sector bodies. Knowing which family you sit in is the first step to avoiding overspend or missing features.
Business plans
Microsoft 365 Business plans are aimed at small and medium-sized organisations with a maximum of 300 users. They’re easy to manage and cover the core productivity tools most teams need.
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Business Basic: Web and mobile Office apps only, plus Exchange email, Teams, SharePoint and 1 TB OneDrive. Best if users don’t need desktop Office.
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Business Standard: Adds the full desktop Office apps (Word, Excel, Outlook, etc.) on top of everything in Basic. This is the most common choice for SMBs.
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Business Premium: Includes everything in Standard plus advanced security and device management with Intune, Entra ID, and Windows 11 Pro rights. Ideal if you want built-in protection and control.
There’s also Apps for Business, which gives you just the Office desktop apps and OneDrive, without email or Teams.
Enterprise plans
Enterprise plans are designed for larger organisations or anyone needing stronger security, compliance, and management features. Unlike Business, there’s no 300-user cap, and licences can be mixed across roles.
- E3: Full Office apps, Exchange, Teams, SharePoint, Windows Enterprise, Intune, and solid baseline security. Great for most corporate environments.
- E5: Everything in E3 plus advanced security, compliance tools, Power BI Pro, and Teams Phone. Best for regulated or security-heavy organisations.
- E1: A lighter, low-cost option for frontline workers using shared devices. Web/mobile apps, limited storage, and core collaboration without full desktop Office.
Education plans
Education plans mirror Enterprise but at heavily discounted academic pricing for schools and universities.
- A1: Free web-only Office apps, email, Teams and OneDrive for students and staff.
- A3: Adds desktop Office, Windows Education, and device management for faculty and labs.
- A5: The top tier with advanced security, analytics, and compliance, similar to E5.
Many institutions use A1 widely and then layer A3 or A5 where extra capability is needed.
Government plans
Government plans are built for public sector organisations that need extra compliance and data sovereignty. They run in Microsoft’s Government Community Cloud (GCC).
- G3: Similar to E3, but hosted in a government-secure environment.
- G5: Similar to E5, with advanced security, compliance, and voice features.
These plans don’t usually publish public pricing and are quoted via Microsoft or partners, but feature-wise they closely follow Enterprise licensing.
Common Microsoft 365 licensing pitfalls (and how to avoid them)
Microsoft 365 is powerful, but Microsoft 365 licensing can trip teams up fast. Most problems don’t come from bad intent — they come from complexity, growth, and not reviewing things often enough. Here are the biggest mistakes IT teams run into, and how to stay ahead of them.
1. Paying for features nobody uses
A common trap is licensing everyone on the top tier “just in case”. Not every user needs E5-level security, analytics, or telephony — and paying for unused features adds up quickly.
Tip: Match the licence to the role. Give premium licences to power users and security teams, and lighter plans to standard users. Review usage regularly and downgrade where it makes sense.
2. Forgetting to reclaim licences
When someone leaves, their licence often stays behind quietly burning budget every month.
Tip: Build licence removal into your offboarding process. Automate it where possible so licences are reclaimed as soon as accounts are disabled.
3. Hitting limits or double-licensing users
Business plans cap out at 300 users, and assigning overlapping licences can mean paying twice for the same services.
Tip: Watch your user count and plan ahead for growth. Use the Microsoft 365 admin centre to spot duplicates and stay compliant before you hit hard limits.
4. Getting caught by add-ons and hidden costs
Some features aren’t included in every plan. Things like Teams Phone, advanced identity protection, Power BI Pro, or compliance tools can quietly turn into extra line items.
Tip: List what your business actually needs, then check what’s included before buying. Sometimes upgrading a plan is cheaper than stacking lots of add-ons later.
5. Paying for tools you already have
The flip side of hidden costs: many organisations buy third-party tools without realising Microsoft 365 already includes similar functionality.
Tip: Audit what’s already in your licence. If you’re on higher tiers like E5, use built-in security, analytics, and compliance features before buying more software.
6. Accidentally falling out of compliance
It’s easy for users to start trials or enable features they’re not licensed for, which can lead to surprise costs or compliance headaches.
Tip: Control who can enable services, and check usage reports regularly. Before rolling out anything new (Copilot, Viva, Teams Voice, etc.), confirm the licensing first.