Microsoft 365 licensing can be confusing. There is a lot of conflicting information and advice out there, even on Microsoft’s own website. This guide attempts to demystify these processes so you can understand the differences and implications.
Note: This article only applies if you are buying licenses directly from Microsoft, rather than through a reseller or partner.
Some products have a month-to-month option as well as an annual commitment option. These are the same products — one is just cheaper. The good news is that annual commitment does not actually commit you to keeping these licenses for a whole year as the name implies.
According to Microsoft:
You can still cancel annual commitment whenever you want without penalty. You can cancel completely or change to another product and you’ll just pay the difference.
Plans available month to month include: Microsoft 365 Business Premium, Standard, Basic, Apps for Business, M365 E3/E5, Office 365 E1/E3/E5, and more. Standalone plans (EMS, Azure AD Premium, PowerBI, Windows 10 Enterprise) are annual commitment only.
Annual commitment subscriptions apparently incur a one month penalty if cancelled early (per the Microsoft Online Subscription Agreement). However, in testing there wasn’t even any penalty — it was just prorated. I contacted Microsoft and was told the refund is prorated with no penalty.
Upgrading all users: Go to Your Products > Select product > View upgrades to upgrade all licenses.
Upgrading some users: Buy the new license, assign to users, then remove the old licenses.
Cancelling a subscription: You have two options:
Microsoft 365 licensing is very flexible. You can add or remove licenses whenever you want without penalty, even if you’ve paid for the whole year upfront. When buying licenses, choose annual commitment since they are cheaper and can still be cancelled anytime.
