Microsoft 365 licences: annual vs monthly commitment
You can reduce or cancel a Microsoft 365 licence only within 7 days of purchase or renewal. Learn when to choose an annual term and when a monthly one.
The Microsoft 365 annual vs monthly commitment decision applies to every licence you buy through a Cloud Solution Provider (CSP) partner. The commitment term can be monthly, annual or, for some plans, three years. You can add licences at any time. You can reduce their number or cancel a subscription only within 7 days of purchase or renewal.
After that, you pay for the whole term, even if someone leaves the company. That is why we usually choose an annual term for a permanent team. The licence is then cheaper and the price is locked until renewal. We keep the monthly term for roles whose number changes during the year.
The rules below follow the Microsoft Partner Center documentation as of 9 November 2026.
Commitment terms in the CSP program
Under the new commerce experience (NCE), the model in which CSP partners sell Microsoft subscriptions, the commitment term and the billing frequency are two separate things:
| Commitment term | Billing | Good to know |
|---|---|---|
| Monthly | every month | the most flexibility, but a higher licence price than on an annual term; not every product has a monthly option |
| Annual | upfront for the year or monthly | the price stays fixed for the whole year; since 1 April 2025, paying monthly for an annual term costs 5% more than paying upfront |
| Three years | upfront, yearly or monthly | available only for selected plans; the price stays fixed for three years |
According to Partner Center pricing and offers, products without a monthly option include Microsoft Intune and some standalone Exchange Online plans. Microsoft announced the 5% surcharge for monthly billing on an annual term in its March 2025 announcement.
What you can and cannot change during the term
During the term, you can add licences, move to a higher plan and extend the term. Most misunderstandings about Microsoft 365 licences come from assuming that a licence can always be given back.
| Change | During the term | At renewal |
|---|---|---|
| Adding licences | yes, you pay pro rata until the end of the term | yes |
| Reducing the number of licences | only within 7 days of purchase or renewal | yes, as a scheduled change |
| Cancelling the subscription | only within 7 days, with a pro rata refund | yes, you turn off auto-renewal |
| Moving to a higher plan (e.g. Business Standard to Business Premium) | yes | yes |
| Moving to a lower plan | no | yes: you reduce or do not renew the subscription and buy the lower plan |
| Changing to a longer term (e.g. monthly to annual) | yes | yes |
| Changing to a shorter term | no | yes |
Sources: new commerce cancellation policy, managing customer subscriptions and changing the term and billing frequency.
The 7-day window (168 hours) opens at purchase and at every renewal, so that is when you can correct the number of licences or the plan.
Can Microsoft raise the price during the year?
No. Price changes do not apply to a commitment term that is already running. Microsoft applies new prices to new subscriptions and at renewal.
This matters in practice. Since 1 July 2026, a global price change for Microsoft 365 plans has applied. Annual subscriptions bought earlier kept their previous price until the next renewal.
Splitting licences into annual and monthly
Buying all licences on one term rarely pays off. We most often suggest a split:
- an annual term for permanent staff, which covers most licences in a typical company
- a monthly term for seasonal roles, interns, projects with a set end date and new hires on probation
- one renewal date for all annual subscriptions
Microsoft lets you align the end date of a new subscription with an existing one. You then renew and review licences once a year instead of several times.
Example: a company has 20 permanent staff, and every year a few seasonal workers join for three months. We buy the 20 licences on an annual term. We add the seasonal licences monthly and turn them off when they are no longer needed. If all of them were annual, you would pay for the seasonal licences for 12 months.
Business plans and the 300-user limit
Microsoft 365 Business plans (Basic, Standard, Premium) are designed for companies with up to 300 users. When a company passes that threshold or needs features from the Enterprise plans, it can move to a higher plan during the term. This is an upgrade and does not require waiting for renewal. The reverse change, from a higher plan to a lower one, is possible only at renewal.
Before buying, check whether every user needs a higher-tier plan. A typical mistake is buying Business Premium for everyone when Business Basic is enough for some people. The result is a year of paying the difference.
How we advise on buying Microsoft 365 licences
We sell Microsoft 365 licences through the CSP program together with other business software. We also manage clients’ licences on an ongoing basis as part of our licensing and Microsoft 365 service. When you buy, we help you:
- count the users: who needs the full Office apps and who only needs email and browser-based apps
- match the plan to your security requirements, for example whether you need Intune and Conditional Access, which we cover in our guide on how to enable MFA in Microsoft 365
- split licences into annual and monthly
- review licences before renewal: remove those assigned to former employees’ accounts and plan the changes for the next term
If you are only now moving email and files to the cloud, we describe the process and cost in our article on the Microsoft 365 rollout plan.
We can also help you plan the purchase. Before your next renewal, send us your subscription list and we will point out licences nobody uses.
