If your organization is on Microsoft 365 E5, you're paying approximately $57 per user per month. Microsoft 365 E3 costs approximately $36 per user per month. The delta is $21/user/month, or $252/user/year.
That math is straightforward. The harder question is: how many of your users are actually safe to downgrade? Because the savings number you should care about isn't the theoretical maximum — it's the actionable savings based on who can actually move to E3 without breaking anything.
The Pricing Baseline
Current Microsoft 365 list pricing (as of early 2026):
| License | List Price (per user/month) |
|---|---|
| Microsoft 365 E5 | ~$57.00 |
| Microsoft 365 E3 | ~$36.00 |
| Delta | $21.00 |
Annualized: $252 per user per year that you save for every E5 seat you safely move to E3.
Note: Your actual prices may vary based on EA agreements, volume licensing discounts, or CSP pricing. The proportional savings relationship holds regardless — check your actual invoice for precise numbers.
The Calculation Framework
Here's the formula:
Annual Savings = Safe-to-Downgrade Users × $252
Where "safe-to-downgrade" means users with no active E5-exclusive dependencies (PIM, risk-based CA, eDiscovery Premium, Defender P2, or Advanced Audit requirements).
Step 1: Count your E5 users
Your starting number. This is available in the Microsoft 365 admin center under Billing → Licenses, or via the Graph API (/subscribedSkus filtered by the E5 SKU ID).
Step 2: Classify each user
For each E5 user, check:
- Do they have active or eligible PIM role assignments?
- Are they in scope for risk-based Conditional Access policies?
- Are they a custodian in an active eDiscovery Premium case?
- Is their primary device enrolled in Defender for Endpoint P2?
- Are they subject to Advanced Audit retention requirements?
Users with zero of these dependencies are candidates for safe downgrade. Users with one or two may be safe after remediation. Users with three or more are likely E5-justified.
Step 3: Calculate
Multiply your safe-to-downgrade count by $252.
A Real Example: 200-User Organization
Let's say you have a 200-person company, all on E5. Your current annual M365 E5 spend:
200 users × $57/month × 12 months = $136,800/year
After running a per-user dependency scan, you find:
| Classification | Users | Description |
|---|---|---|
| Safe | 80 | No dependencies — downgrade directly |
| Safe with Remediation | 40 | 1-2 dependencies, addressable |
| Not Safe | 50 | 3+ dependencies — keep on E5 |
| Requires Review | 30 | Ambiguous signals |
Immediate actionable savings (Safe users only):
80 users × $252/year = $20,160/year
Full potential savings if remediation is completed (Safe + Safe with Remediation):
120 users × $252/year = $30,240/year
That's a 22% reduction in your M365 licensing spend, achieved without removing any capability from users who actually need it.
Why Most Teams Underestimate the Opportunity
The most common mistake is assuming a department-level policy is safe enough: "Nobody in marketing needs E5, so let's move them all to E3." The problem is that exceptions exist in every department:
- A marketing manager who's also a temporary Teams or SharePoint admin
- A finance analyst who's a custodian in an old eDiscovery case that was never closed
- A sales rep whose laptop was enrolled in MDE P2 during a security incident investigation
These edge cases are exactly what gets missed in manual reviews — and what causes compliance or security gaps after a bulk license change.
The reliable approach is a per-user, per-signal audit that checks all five dependency categories for every E5 user before you make changes.
The Savings Potential by Organization Size
| Org Size | All E5 | 60% Safe to Downgrade | Annual Savings |
|---|---|---|---|
| 100 users | $68,400/yr | 60 users | $15,120/yr |
| 250 users | $171,000/yr | 150 users | $37,800/yr |
| 500 users | $342,000/yr | 300 users | $75,600/yr |
| 1,000 users | $684,000/yr | 600 users | $151,200/yr |
60% is a conservative estimate for organizations that deployed E5 broadly. Many IT teams find the actual safe-to-downgrade percentage is higher once they audit systematically.
Getting Your Actual Number
Calculating savings potential manually requires querying multiple APIs (Entra ID, Graph, Purview, Defender Security Center), correlating the results, and building a per-user report. For most teams, that's days of work.
M365 Assist does it in minutes — connect your tenant via admin consent, run a scan, and get a per-user classification table with your total projected annual savings calculated automatically.
This article is for informational purposes only and does not constitute legal or financial advice. Microsoft product names, pricing, and licensing terms are subject to change. Verify all details against current Microsoft documentation and your specific agreement terms before making purchasing decisions.