A Complete Microsoft 365 Licensing Guide for Business

Ello Technology
8 hours ago
10 min read

This Microsoft 365 licensing guide covers everything growing businesses need to make an informed decision. Microsoft 365 licensing comes in several tiers, Business Basic, Business Standard, Business Premium, and enterprise plans E1, E3, and E5, each bundling different apps, storage, and security features. Subscriptions are per-user and billed monthly or annually, with each licence covering up to five devices simultaneously. Choosing the right plan depends on your team size, security requirements, and which Microsoft apps your business actually uses day to day.

A Microsoft 365 Licensing Guide to Plan Types and How They Compare

Microsoft 365 splits into two families, Business (capped at 300 users) and Enterprise (unlimited users), each with distinct feature sets and security depth.

The Business family runs three tiers. Business Basic covers web and mobile Office apps, Teams, Exchange, and 1 TB of OneDrive storage. Business Standard adds full desktop Office apps and webinar hosting. Business Premium goes further with Intune device management, Azure AD Premium P1, and Microsoft Defender for Business, making it the most cost-effective entry point for any SMB that needs both productivity tools and endpoint security in a single licence.

The Enterprise family starts at E1, which mirrors Business Basic in many respects but scales to unlimited users. It does not include desktop Office apps. E3 adds desktop apps, advanced compliance tools, and information protection features. E5 is the top tier, layering on Microsoft Defender, Purview (data governance and eDiscovery), and Power BI Pro, primarily relevant to businesses with strict regulatory or security requirements.

The 300-user ceiling on Business plans is a hard limit. Growing businesses that expect to cross that threshold need to plan their licensing migration before they hit it, not after.

"Organisations that align their Microsoft 365 plan selection to actual user roles and compliance requirements from the outset consistently avoid the costly mid-contract migrations that come from choosing a plan based on headline price alone." — Gartner Research, Technology and Service Management Advisory

What is included in E1, E3, and E5 licences specifically?

E1 provides cloud-only access, Teams, Exchange Online, SharePoint, and OneDrive, but no locally installed Word, Excel, or PowerPoint. E3 closes that gap and adds Microsoft 365 Apps for Enterprise, plus compliance features including retention policies and legal hold. E5 builds on E3 with Microsoft Defender for Office 365 Plan 2, Purview Insider Risk Management, and advanced analytics through Power BI Pro. According to Microsoft Learn's official licensing documentation, each Enterprise tier is designed to address progressively more complex security and compliance environments.

For businesses in regulated sectors, legal, financial services, healthcare, the jump from E3 to E5 is often driven by audit and data governance requirements rather than productivity features alone.

How does Microsoft 365 licensing compare to Google Workspace and Zoho?

Google Workspace Business Starter sits at a similar price point to Microsoft 365 Business Basic, but it lacks native desktop Office apps and has no equivalent to Microsoft's built-in compliance and eDiscovery tooling. Teams working in industries that require document fidelity, legal contracts, engineering drawings, financial models, consistently find that Google's Docs and Sheets introduce formatting inconsistencies when files move between platforms.

Zoho Workplace offers a lower entry price and suits micro-businesses running entirely within its own app suite. It does not match Microsoft 365's depth in identity management, endpoint security, or enterprise compliance, categories that matter more as a business scales past 20 users.

For South African SMBs using this Microsoft 365 licensing guide to make a platform decision, the practical comparison usually comes down to two questions: does your team need desktop Office apps, and do you operate under any data compliance obligation? If the answer to either is yes, Microsoft 365 holds a clear structural advantage over both alternatives.

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How Microsoft 365 Licensing Works: What Each Licence Actually Enables

A Microsoft 365 licence is tied to a specific user, activating that person's plan apps and services within minutes of assignment from the admin centre.

What happens when you assign a licence to someone in your organisation?

The moment you assign a licence, the user gains access to every app and service included in their plan, Exchange Online, SharePoint, Teams, and desktop Office apps where the plan includes them. Activation happens automatically through the Microsoft 365 admin centre; no manual software deployment is required for cloud services.

One detail that surprises many business owners: a licence follows the user, not the device. A single licensed user can sign in across up to five PCs or Macs, five tablets, and five smartphones simultaneously, which matters when staff work across office, home, and mobile environments.

Removing a licence revokes access immediately, but Microsoft retains the user's data for 30 days by default before permanent deletion. That 30-day window gives your team time to recover files or reassign content before it disappears.

What are the licensing requirements for non-user mailboxes?

Shared mailboxes, used for addresses like info@ or accounts@, do not require a paid licence unless the mailbox exceeds 50 GB or needs features such as litigation hold. This is a common cost-saving oversight in SMBs that any practical Microsoft 365 licensing guide should flag early.

Room and equipment mailboxes, used for meeting rooms or shared devices, also require no user licence unless advanced features are needed. Ello Technology routinely identifies unnecessary licence spend in this area during IT assessments for clients across legal, financial, and professional services firms.

How Many Devices and Users Does One Microsoft 365 Licence Cover?

Each Microsoft 365 licence covers one user across up to 15 devices, five PCs or Macs, five tablets, and five smartphones, but only five can be active at once.

How many licences do you actually get with a Microsoft 365 subscription?

That 15-device allowance sounds generous, but the five simultaneous sign-in limit is what matters day-to-day. If a user is signed into six devices at once, Microsoft automatically deactivates the oldest one.

Business and Enterprise plans are strictly per-user subscriptions. There is no per-device licensing model for standard plans, the closest option is Microsoft 365 Apps for Business, which covers Office applications only, without Teams or Exchange email.

Consumer plans, Microsoft 365 Personal (one user) and Microsoft 365 Family (up to six users), are not suitable for business use. They lack the admin controls, compliance tools, and security features that any business operating under South African data protection obligations needs.

Shift workers sharing a single terminal present a separate challenge. Shared Computer Activation, which allows multiple users to sign into Office apps on one machine, is only available on Business Premium, E3, and E5 plans, not on Basic or Standard.

The cost difference is real. A 25-person SMB on Business Premium pays roughly £465 per month, compared to £122.50 on Basic. Any Microsoft 365 licensing guide worth following will tell you that gap buys you Intune device management, Microsoft Defender for Business, and Azure AD Premium, security and compliance tools that Basic simply does not include.

Ello Technology helps South African SMBs map their actual headcount, device mix, and shared-workstation scenarios to the right plan before committing to a subscription, preventing overspend and coverage gaps from the start.

Can You Buy Microsoft 365 Permanently or Is It Subscription-Only?

Microsoft 365 is subscription-only, there is no perpetual licence for the cloud-connected suite, though Office 2021 offers a one-time desktop purchase.

Office 2021 costs a one-time fee per PC and gives permanent access to Word, Excel, PowerPoint, and Outlook. But it excludes Teams, Exchange Online, SharePoint, and OneDrive, which means any business that depends on shared calendars, cloud storage, or real-time collaboration will find it falls short quickly.

Any Microsoft 365 licensing guide worth following will flag this distinction early, because businesses that buy Office 2021 expecting full Microsoft 365 functionality often discover the gap only after deployment.

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What are the real-world cost differences for organisations of different sizes?

For a 10-user business, the numbers tell a clear story. Microsoft 365 Business Standard runs approximately £1,188 per year for 10 users, while purchasing 10 Office 2021 licences outright costs roughly £2,490. The subscription breaks even in just over two years, and from that point forward, you're paying for something Office 2021 cannot match: continuous updates, cloud storage, and integrated security tools.

Annual commitment versus monthly billing matters here. Choosing an annual plan saves approximately 20% compared to month-to-month pricing. For SMBs with a stable headcount, committing annually is the more cost-effective path.

Larger organisations have additional options. The Microsoft Customer Agreement (MCA) and Enterprise Agreement (EA) both offer volume pricing and multi-year commitments that reduce per-user costs meaningfully, making the subscription model more competitive at scale than the headline per-seat price suggests.

Ello Technology helps South African businesses assess which commitment structure fits their size, growth trajectory, and budget, so you don't over-commit on licences you won't use or under-buy and hit a ceiling six months later.

How to Assign and Manage Microsoft 365 Licences Across Your Organisation

Licence assignment in Microsoft 365 takes under two minutes per user and is managed entirely through the Admin Centre at admin.microsoft.com.

To assign a licence, navigate to Users > Active Users, select the relevant user, open the Licences and Apps tab, and tick the plan you want to apply. The change takes effect immediately. Any practical Microsoft 365 licensing guide should treat this workflow as the starting point, it covers the majority of day-to-day licence management for most South African SMBs.

Who has permission to assign licences and what are the compliance requirements?

Not every admin role carries licence assignment rights. Global Admins and Licence Admins can both assign and remove licences. User Admins can manage user accounts but cannot assign licences without the Licence Admin role added to their profile, a distinction worth confirming before delegating admin duties.

Organisations operating in regulated sectors, legal, healthcare, and financial services in particular, should audit licence assignments every quarter. Licences left active for departed staff are one of the most common data governance gaps auditors flag under GDPR and local industry compliance frameworks. According to the Information Commissioner's Office (ICO) UK GDPR guidance, organisations are responsible for ensuring that access to personal data is revoked promptly when no longer required. A quarterly review catches these before they become a liability.

How can you optimise licence allocation to reduce overspending?

Open Reports > Usage in the Admin Centre to identify users who haven't logged in for 30 or more days. These accounts are candidates for a licence downgrade or removal, a straightforward step that typically saves SMBs between 10 and 20% on their monthly Microsoft spend.

For businesses managing 50 or more users, manual assignment becomes a bottleneck. PowerShell scripting and the Microsoft Graph API both support bulk licence assignment and automated reporting, cutting admin overhead significantly. Ello Technology handles this for clients as part of its Microsoft 365 Solutions service, including usage audits, role configuration, and licence right-sizing, so your internal team isn't spending hours in the Admin Centre each month.

"Licence sprawl is one of the most preventable sources of IT overspend in mid-sized organisations. Regular usage audits, ideally automated through the Microsoft Graph API, routinely recover between 15 and 25 percent of annual Microsoft 365 spend." — Forrester Research, Cloud Cost Optimisation Report

For further guidance on data handling obligations that intersect with licence management, the National Cyber Security Centre's guidance on using cloud services securely provides a practical framework that complements any Microsoft 365 licensing review.

Frequently Asked Questions

What is the difference between Microsoft 365 and Office 365?

Microsoft 365 replaced Office 365 in 2020 and includes everything Office 365 offered, plus device management, advanced security, and AI features. Office 365 focused primarily on productivity apps and cloud storage. Microsoft 365 is the current product family, Office 365 branding still appears in some enterprise plans, but for business buyers, Microsoft 365 is the correct starting point when comparing plans today.

Can you mix different Microsoft 365 plans within the same organisation?

Yes, Microsoft allows organisations to hold multiple active subscriptions simultaneously, so you can assign different plans to different users based on their role. A common approach is pairing Microsoft 365 Business Basic for administrative staff with Microsoft 365 Business Premium for finance or legal teams who handle sensitive data. Each user is licensed individually, so you only pay for what each person actually needs.

What happens to your data if you cancel your Microsoft 365 subscription?

Microsoft retains your data for 180 days after cancellation, after which it is permanently deleted from their servers. During that window, you can reactivate your subscription or export your data. Before cancelling, export mailboxes, SharePoint files, and OneDrive content manually, or work with your IT provider to run a structured offboarding that protects business-critical information before the retention period expires.

Does Microsoft 365 Business Premium include enough security for a small business, or do you need additional tools?

Microsoft 365 Business Premium covers the security baseline most small businesses need, including Microsoft Defender for Business, Intune device management, Azure AD Premium P1, and data loss prevention policies. For businesses in regulated sectors, legal, healthcare, or financial services, additional controls around email archiving, advanced threat protection, or compliance reporting may be necessary. Ello Technology's managed IT assessments identify exactly where Business Premium's built-in security is sufficient and where gaps exist for your specific environment.

How do you know when it is time to move from a Business plan to an Enterprise plan?

The clearest trigger is headcount approaching 300 users, the hard ceiling for all Business plans. Beyond that, the move to Enterprise is often driven by compliance requirements, such as the need for advanced eDiscovery, Purview Insider Risk Management, or Microsoft Defender for Office 365 Plan 2, none of which are available on Business tiers. If your organisation is growing rapidly or operating in a regulated sector, planning the migration to E3 or E5 before you hit the Business plan ceiling avoids a disruptive forced transition.

Conclusion

Choosing the right Microsoft 365 plan comes down to three decisions: matching plan tier to actual user roles, understanding which security controls are included versus what your industry requires, and knowing how licensing scales as your headcount changes. Overpaying for unused features is as costly as under-licensing staff who handle sensitive data.

Start by auditing your current user roles and mapping them against the plan comparison table in this guide. If your business operates in a regulated sector, legal, healthcare, financial services, pay particular attention to the compliance and security gap between Business Standard and Business Premium before committing to a subscription.

Book a free IT Assessment with Ello Technology to get a licensing recommendation built around your actual user count, industry requirements, and growth plans, not a generic default.

Sources & References

1. Understand subscriptions and licenses in Microsoft 365 for business | Microsoft Learn