E3, E1 or Business Premium? Right-sizing licences per user

Most tenants buy one SKU and assign it to everyone, because that is the decision you can make on day one without any data. It is also the most expensive decision in the tenant. Right-sizing is the opposite move: look at what each person actually does — do they open desktop Office, do they need a managed device, how much mail do they keep — and put them on the cheapest SKU that still covers it. The gap between an E3 seat and an E1 seat is roughly €24 a month. Across forty people who only ever use Outlook and Teams in a browser, that is a five-figure annual line item nobody argued about.

Two ladders, not one price list

The catalogue looks like a wall of SKUs, but operationally there are two ladders: the Business family (capped at 300 seats, cheaper, security bundled in early) and the Enterprise family (no cap, more expensive, security sold as the top rung). Within each ladder, every step you climb buys one specific thing. Knowing which step you're paying for is most of the work.

What each rung actually buys

Those are list prices in EUR on annual commitment, rounded. Your CSP or EA price will differ — use the ratios, not the quotes. The ratio that matters: E3 is roughly three and a half E1s.

The four signals that name the over-licensed users

Where right-sizing goes wrong

• Starting with the downgrade instead of the deletion. Before you move anyone down a rung, remove the licences from people who shouldn't have one at all — leavers, test accounts, never-signed-in users. That's the free money, covered in dormant accounts: licensed users who haven't signed in for 90+ days, and it usually costs more than the entire right-sizing exercise saves.
• Deciding on one month of data. August makes everyone look dormant. Use 90 days, and check that the window doesn't sit inside a shutdown or a project lull.
• Forgetting the 300-seat cap. Business Premium is a genuinely good deal until the headcount crosses 300 and you have to migrate the whole tenant mid-year. If you're at 260 and hiring, price the enterprise ladder now.
• Downgrading without checking dependencies. Litigation hold, retention policies, Power BI Pro, audio conferencing and Defender features silently disappear with the SKU. Check what each user's licence is actually enforcing before you swap it.
• Ignoring the term. On an annual NCE commitment you can't reduce seats mid-term — the right-sizing plan lands at renewal, so it has to exist before the renewal date, not after it.

Make it a per-user view, not a spreadsheet

Done by hand, this means four separate admin-center exports, a VLOOKUP on UPN, and a result that's stale before the meeting where you present it. That's why it happens once, at renewal, under time pressure. GraphPaaS keeps the joined view per tenant — licence assignment against app, mailbox, OneDrive and Teams activity for every user — and refreshes it on every sync, so the renewal conversation starts from a list of names instead of a total. It pairs with the tenant-wide numbers in how much you're wasting on unused Microsoft 365 licences: that audit tells you how big the problem is, this one tells you which seat to change.