Why Licensing Metrics Matter More Than Price
Most enterprise licensing discussions focus on price — the per-user monthly cost, the EA discount, the list price movement at renewal. These are important, but they are downstream of a more fundamental question: what metric is this licence measured against? The metric determines how many licences you need, what counts as a usage event, and where the compliance risk lies. Getting the metric wrong exposes you to audit findings that no amount of negotiating discount can offset.
Microsoft's product catalogue spans three distinct licensing metric families. Cloud and modern workplace products — Microsoft 365, Dynamics 365, Power Platform — use per-user or per-device metrics, where you pay based on the number of people or machines consuming the software. Server infrastructure products — Windows Server, SQL Server, Exchange Server — use per-core metrics combined with Client Access Licences (CALs), where you pay based on processor capacity and separately for each user or device that connects to the server. And some products sit in the middle, offering a choice between metrics (SQL Server being the most prominent example), where the right choice depends entirely on your specific deployment architecture.
Understanding which metric applies to which product, and what the counting rules are for each, is the foundation of an accurate licence position. It is also the foundation of a defensible position when Microsoft's SAM team asks you to demonstrate compliance.
Per-User Licensing: The Cloud Metric
Per-user licensing is the dominant model for Microsoft's cloud and subscription products. One licence, one named user, unlimited devices. The user can access the licensed product from their laptop, phone, tablet, or any other device — the licence travels with the person, not the hardware. This model reflects the modern workplace reality where knowledge workers operate across multiple devices throughout their day.
Microsoft 365: E1, E3, E5, E7
The Microsoft 365 suite is the most widely deployed per-user licence in the enterprise market. The current M365 SKU stack is E1 → E3 → E5 → E7, where each tier adds capabilities above the previous. E1 provides core cloud productivity (Exchange Online, SharePoint Online, Teams). E3 adds Office applications, advanced compliance, and enhanced security. E5 adds advanced security analytics, audio conferencing, and Microsoft Purview compliance tools. E7 is the newest and top tier, positioned above E5, which includes Microsoft 365 Copilot, advanced AI capabilities, and security features previously sold as standalone E5 add-ons.
A critical point that every procurement team must understand: E7 is the current top SKU. Microsoft field teams are actively moving E5 customers to E7 at renewal, presenting Copilot and AI capabilities as the upgrade justification. If your account team or partner is telling you that E5 is the most comprehensive option, that information is outdated. E7 is the flagship, and evaluating it properly — including the economics of E7 versus E5 plus standalone Copilot at £30/user/month — is a necessary step in every EA renewal discussion.
Under per-user licensing, the compliance question is straightforward: every individual who accesses M365 features must be assigned a licence at or above the tier that includes those features. A user accessing Teams is compliant under E1. A user accessing Advanced Threat Protection features requires E5 or E7. A user running Copilot requires E7 or a standalone Copilot add-on. The True-Up mechanism in an EA captures any growth in assigned user counts between annual reporting periods, which is why licence assignment discipline — not over-assigning users to higher tiers than they need — is a material cost control.
Dynamics 365 and Power Platform
Dynamics 365 uses a per-user model with a more complex structure than M365. Dynamics licences come in Full User and Team Member variants — Full Users access the core Dynamics modules (Sales, Customer Service, Finance, Supply Chain) with full read/write capability; Team Members have read-only access across the Dynamics suite and limited write access to specific functions. The Team Member licence is a common cost-optimisation tool for organisations with large populations of light Dynamics users (employees who need visibility into CRM data but do not run sales or service processes).
Power Platform licences include Power Apps per-user (unlimited app usage) and Power Apps per-app (access to a specific single application), with the choice driven by how many discrete Power Apps a given user population needs. An employee who uses two or three Power Apps daily is more economically covered by a per-user plan; one who uses a single departmental app infrequently is better served by a per-app licence. Microsoft has historically under-enforced Power Platform compliance, but as adoption has grown, SAM engagements are increasingly flagging unlicensed Power Apps usage in True-Up reviews.
Per-Device Licensing: The Endpoint Metric
Per-device licensing assigns the licence to a specific hardware endpoint rather than to a named individual. Any number of users can access the licensed software on that device — the licence stays with the machine. This model originated in the client OS era and remains relevant for specific deployment scenarios.
Windows 11 Enterprise
Windows 11 Enterprise is licensed per device through the Microsoft 365 suite (included in E3 and above) or as a standalone Windows Enterprise licence. Each physical device running Windows 11 Enterprise must be covered by an active licence. In an EA, Windows Enterprise is licensed on an organisation-wide basis — you must cover all qualifying devices in the organisation, not just a subset. This is a significant compliance point: organisations that selectively licence Windows Enterprise on some devices while deploying the OS more broadly are non-compliant, regardless of whether individual users hold M365 licences that include Windows Enterprise.
The device count for Windows Enterprise in an EA True-Up is typically self-reported by the customer based on device management system data (Intune, SCCM, or equivalent). Discrepancies between the reported count and the actual installed base — particularly for devices managed outside central IT — are a common source of True-Up adjustment discussions with Microsoft.
When Per-Device Makes Sense Over Per-User
Some Microsoft 365 products offer a choice between per-user and per-device licensing. Per-device can be commercially preferable in specific scenarios: shared workstations (factory floor terminals, healthcare stations, or kiosk devices) where multiple users share a single device but no single user requires their own licence; high-turnover environments (contact centres, seasonal warehouses) where device identity is more stable than user population; and certain Frontline Worker deployments where M365 F1/F3 per-user Frontline licences cover the user but a device-based licence better reflects the access pattern.
The decision between per-user and per-device should always be made with a quantitative model: calculate the licence count under both metrics and select the one that provides compliant coverage at lower cost. Microsoft's licensing terms do not prevent you from mixing per-user and per-device within the same estate; many large enterprises run a combination of both, with per-user for standard knowledge workers and per-device for shared endpoint deployments.
Per-Core Licensing: The Data Centre Metric
Per-core licensing applies to server infrastructure products and is the most complex of the three metric families. The core concept is that server software licences are measured against the processing capacity of the hardware on which the software is installed, not against the users who access it. Two additional concepts layer on top of the core licence: the Client Access Licence (CAL), which governs user or device access to licensed server services, and the minimum-core rules, which set a floor on the number of cores that must be licensed regardless of actual CPU configuration.
Windows Server 2022 and 2025: Core-Based Licensing Rules
Windows Server 2022 and Windows Server 2025 are licensed on a per-physical-core basis. The rules are: every physical core on every processor in a licensed server must be covered; the minimum number of core licences per physical processor is eight; and the minimum number of core licences per server is sixteen (covering a typical two-socket server with eight cores per processor). Core licences are sold in two-core and sixteen-core packs.
For servers with more than two processors or processors with more than eight physical cores — common in high-performance infrastructure — the licence count scales directly with the total physical core count. A four-processor server with 16 physical cores per processor requires 64 core licences (4 × 16). At current 2026 pricing for Windows Server Standard, those 64 cores represent a meaningful per-server licensing cost before any CAL requirements are added.
The virtualization model adds another layer. Windows Server Standard licences cover the host server plus two Virtual Machine (VM) instances on that host. If you run more than two VMs on a Standard-licensed host, you need additional Standard licences (or a Datacenter licence, which covers unlimited VMs on the licensed physical host). Datacenter is the right choice for densely virtualised environments; Standard is cost-effective for lightly virtualised or physical deployments. Getting this wrong — running 10 VMs on a Standard-licensed host — is a textbook compliance gap that appears repeatedly in Microsoft audit findings.
SQL Server: Core vs Server/CAL — The Decision Framework
SQL Server offers a genuine choice between two licensing models, and the right choice depends on your deployment architecture. The per-core model licences the SQL Server instance based on the number of physical or virtual cores on the server — no CALs required, unlimited client connections. The Server/CAL model licences the SQL Server instance with a single server licence, then requires a CAL for every user or device that accesses that instance — client connections must be counted and licenced separately.
The per-core model is typically more cost-effective when: the SQL Server instance has many users accessing it (often true for enterprise databases accessed by hundreds or thousands of employees); the instance runs on hardware with a low core count; or the access pattern makes CAL counting impractical (internet-facing databases, for example, where the accessing user population is undefined). The Server/CAL model is cost-effective when: the number of accessing users is small and well-defined (a specialist application used by 20 people); the server hardware has a high core count that would make per-core licensing expensive; or the SQL Server edition is Standard rather than Enterprise (Server/CAL is not available for SQL Enterprise, which must be licensed per core).
For SQL Server Enterprise — which includes advanced HA/DR features, in-memory analytics, and the full feature set required for mission-critical databases — per-core is the only model. SQL Server Enterprise per-core is one of the most expensive Microsoft licence types, and its cost in a Microsoft EA is a significant lever: customers with large SQL Server Enterprise estates are among Microsoft's most commercially valuable, and their renewal negotiations command corresponding attention from Microsoft's account teams.
CALs: The Often-Overlooked Third Element
Client Access Licences (CALs) are a separate licence required in addition to the server licence for users or devices that access certain Microsoft server products. Windows Server, Exchange Server (on-premises), SharePoint Server (on-premises), SQL Server (under the Server/CAL model), and Skype for Business Server all require CALs for their accessing user or device population.
The CAL is either a User CAL (one per named individual, unlimited devices) or a Device CAL (one per device, unlimited users per device). The same per-device versus per-user analysis that applies to endpoint licences applies here: User CALs suit environments where users access the server from multiple devices; Device CALs suit environments where multiple users share a small number of devices.
CAL Suite licences — the Core CAL Suite and the Enterprise CAL (ECAL) Suite — bundle multiple individual product CALs into a single per-user licence covering a range of Microsoft server products. For organisations running multiple on-premises Microsoft server products, CAL Suites often represent a significant saving versus individual product CALs, and they are included (or superseded) in M365 E3 and above. One of the primary financial incentives for moving from on-premises server deployments to Microsoft 365 cloud is the replacement of separate server licences and CALs with a single per-user M365 subscription — simplifying the licence model while Microsoft captures the equivalent recurring revenue through the subscription.
Licensing Metrics in the Context of EA Negotiations
Understanding licensing metrics is not just a compliance discipline — it is a commercial tool. When you understand exactly how licences are counted, you can build accurate models for what you need versus what Microsoft is proposing, identify over-licensing (paying for more than you consume), and construct the True-Up baseline that gives you confidence in renewal negotiations.
Enterprise Agreement negotiations in 2026 are taking place against the backdrop of Microsoft's push to move all customers toward per-user cloud subscriptions. Microsoft's commercial preference is for the clean per-user M365 SKU model — it simplifies their revenue recognition, increases recurring subscription revenue, and reduces the negotiating complexity of per-core server agreements. Buyers who maintain large on-premises SQL Server or Windows Server estates are increasingly pressured to migrate to Azure (where the core model is replaced by Azure VM sizing and consumption pricing) or to newer licensing constructs that bundle server and cloud access into hybrid subscriptions.
The current standard EA discount range of 10–20% off list applies to all licence metric types. Monthly NCE commitments carry no discount; annual NCE commitments yield up to 5%. For organisations with significant per-core server estates approaching renewal, the Microsoft EA advisory specialists negotiation at Redress Compliance focuses specifically on the intersection of metric optimisation and commercial terms — ensuring that the licence model selected reflects actual usage patterns rather than Microsoft's preferred upsell path.
Not sure whether your current licence metric is optimised for your deployment?
Our Microsoft EA advisory specialists team conducts metric optimisation reviews that routinely identify 15–30% cost reduction opportunities in mixed server and cloud estates.