Skip to content

Monthly vs Annual Microsoft Licensing

If you hold Microsoft Office 365 licenses, you would have recently been contacted by your Managed Services Provider with an important decision about Monthly vs Annual Microsoft licensing going forward. Here’s a recap of why, what changed, and most importantly, what’s next!

How Microsoft has changed license billing and how it affects you

Firstly, Microsoft has made an average across-the-board 20% price increase to the price of 6 key subscriptions – Microsoft Business Basic, Microsoft Business Premium, Office 365 E1, E3, and E5, as well as Microsoft 365.

Additional to this price rise, which came into effect in March 2022, Microsoft has changed they way they are billing for Microsoft Office 365 subscriptions going forward. Under what Microsoft now refers to as their New Commerce Experience, there are 2 main options: Monthly vs Annual Microsoft licensing. And each of these options represents a flexibility vs cost trade off.

From now on when you add a new Microsoft Office 365 subscription you will have to decide between the following:

  • To purchase the subscription on a monthly term, which will attract a further 20% charge on top of the base price level. (The 20% monthly billing surcharge is due to come into effect from July 2022)
    • Under this more flexible scenario, additional licenses can be added at any time, but downward revisions or cancellations can only be made within 7 days of the MONTHLY subscription anniversary date.
  • To purchase the subscription on an annual term and pay the 12-month fee upfront. By choosing this option, you avoid the new 20% monthly premium, which may represent a substantial saving over the annual term for many organisations.
    • However, this saving comes with the caveat that, whilst additional licenses can be added at any time throughout the 12-month term, downward revisions or cancellations can only be made within 7 days of the ANNUAL subscription anniversary date.

What happens when you need to make changes to your license numbers ?

So, when you add an additional existing license during your monthly or annual term, that license will be what we referred to as co-termed. Essentially this means you will be charged the cost of the additional license on a pro-rata basis up to the subscription anniversary date already in place for that subscription.

If however, you are purchasing an all-new license level that you have not previously held before, you will be asked to decide again whether you wish to take up the monthly or annual subscription term option for that product, under the same terms and conditions as outlined above.

For customers, what this means is that your organisation may at any point in time have a mix of license types, and a mix of monthly and annual billing models, with varied subscription renewal dates. And those subscription renewal dates, especially for annual term products, will be very important as they represent the start of the 7-day window during which you will able to reduce or cancel licenses.

Top tip! We suggest that you review your current subscription renewal dates and discuss with your Account Manager how you can best timetable licensing change discussions at precisely the right time.

“We recently took up an option to lock in another year of monthly billing before the baseline price rise and the 20% premium came into effect. What does that mean for us?”

Well first of all, great news! You’ve got till early 2023 before you next have to make the monthly vs annual Microsoft licensing decision!

However, at that point two things will happen:

  1. The new baseline price rise that came into effect in March 2022 will start to be charged on your licenses, and
  2. You will need to determine whether you want to continue with monthly billing, albeit with the new 20% monthly billing premium charge, or switch over to an annual term with an upfront 12-month payment to avoid the surcharge.

Top tip! As we head into budgeting and planning season, savvy organisations will want to be looking at their cashflow and IT budgeting for the coming financial year and plan and account for a 10-20% rise in their license costs if they move to ANNUAL 12-month upfront payment option in early 2023, OR a 30-40% price rise in their license costs if they continue to opt for the more flexible MONTHLY billing option.

If you’d like some assistance in modelling out monthly vs annual Microsoft licensing and billing scenarios for your organisation, or want to discuss how these licensing changes might play into other technology projects you’re planning, reach out to Maxsum on 1300 629 786 or contact us here.