How do Microsoft 365 licenses and billing work?

The short version

• A subscription is what you buy. It holds a number of licenses. Each person uses one.
• Assign licenses under Billing, then Licenses, or on the person in Active users.
• Unassigning a license frees it for someone else. It doesn’t reduce the bill.
• To pay for fewer, reduce the license count, which Microsoft often allows only within seven days of a purchase or renewal.
• Bought through a partner? Changes and cancellations go through them.

What’s the difference between a subscription and a license?

Think of the subscription as a box of seats. You buy Business Standard with 8 licenses, and you can give those 8 to any 8 people. Shared mailboxes usually don’t need one; people do. Microsoft’s license page notes that you can hold more than one subscription for the same plan, and the Licenses page adds them together.

You can also mix plans in one account, per Microsoft’s plan options page, and the Business family tops out at 300 licenses across all Business plans combined.

How do I assign or free a license?

From Microsoft’s license page, the quickest way for one person:

1. In the Microsoft 365 admin center, go to Users, then Active users.
2. Select the person, then Licenses and Apps.
3. Expand Licenses, tick or untick the license, and select Save changes.

You need at least the License Administrator or User Administrator role. If you see an error, open the product under Billing, Licenses and check the Errors & Issues tab. The usual causes are no licenses left, conflicting plans, or a missing usage location.

How do I add or remove licenses from the bill?

These steps follow Microsoft’s buy or remove licenses page:

1. In the admin center, select Subscriptions (simplified view) or go to Billing, then Your products.
2. Select the subscription.
3. Select Buy licenses or Remove licenses.
4. Under New quantity, type the total you want, not the change. To go from 10 to 8, type 8.
5. Select Save.

Microsoft’s rules depend on your billing account type:

• Microsoft Customer Agreement (MCA): you can buy more at any time, but you can only remove licenses within seven days of buying or renewing, or of adding licenses. After that, the reduction takes effect at renewal.
• Microsoft Online Subscription Agreement (MOSA): Microsoft describes a prorated adjustment on the next invoice.
• You can’t remove licenses that are still assigned. Unassign them first.

What if we want to cancel?

Microsoft’s cancellation page says:

• On an MCA account, you get a prorated refund only if you cancel within seven days of the start or renewal. After that, turn off recurring billing so it doesn’t renew.
• If you bought through a reseller partner, you also have seven days, and the partner handles it.
• On an annual subscription paid monthly, you’re charged each month for the rest of the term.
• Have everyone save their files first. Microsoft says data left behind might be deleted after 30 days, and is deleted no later than 180 days after cancellation.

Microsoft also says to remove your own domain from the subscription before cancelling, so it can be used elsewhere.

Why does this matter?

Three things often cause surprise bills: licenses still assigned to people who left, licenses freed but never removed, and renewals that passed while nobody was watching. A short check a few weeks before each renewal catches all three.

What are the common mistakes?

• Unassigning and assuming the bill drops. It doesn’t until the count changes.
• Missing the seven-day window. Then you pay for the extra licenses until renewal.
• Renewal emails going to someone who left. Make sure billing notices reach an address someone reads.
• Not knowing who you bought from. If the subscription page says “Reseller,” Microsoft says to contact that partner to change licenses.
• Removing a license to “clean up” a leaver too early. That starts Microsoft’s 30-day mail deletion. See offboarding an employee.

What if the Buy or Remove buttons are greyed out?

Microsoft lists these reasons: a pending credit check (usually up to two working days), a prepaid product key subscription, a subscription bought through a reseller, a trial, or a product that has reached end of sale.

How much does it cost?

It depends on the plan, the number of people, the billing term and who you buy from. We don’t quote Microsoft’s prices here because they change. Compare the yearly total for your whole team.

How does E-3 handle this?

When E-3 sets up Microsoft 365, the account is in your business’s name with E-3 added as a user, so you can always see your own subscriptions and invoices. We’ll quote E-3’s own work after a short call.

Related questions

• Which plan does my team need?
• What happens to a leaver’s account, files and license?
• Who should be an admin in Microsoft 365?
• Back to the complete Microsoft 365 guide

Sources

1. Assign or unassign licenses for users (Microsoft Learn)
2. Buy or remove licenses for a Microsoft business subscription (Microsoft Learn)
3. Cancel your Microsoft business subscription (Microsoft Learn)
4. Microsoft 365 and Office 365 plan options (Microsoft Learn)