Microsoft’s Latest Price Increases: What MSPs Must Know to Protect Profitability

The MSP Success Thought Leaders Program invites leaders in the small business IT/MSP industry to share their insights and advice with MSP Success readers. This article was written by guest contributor Matt Katzer. Katzer is founder and CEO of KAMIND Cloud Solutions Advisors, based in Lake Oswego, Oregon.

Microsoft’s latest price increases represent a fundamental shift that will directly impact how MSPs manage client subscriptions, pricing, and renewals. With major adjustments coming to the New Commerce Experience (NCE), site/tenant licenses, and Enterprise Agreements (EA), MSPs must take proactive steps now to avoid unexpected costs and disruptions for their clients.

For MSPs supporting SMBs and midmarket businesses, these changes present both challenges and opportunities. The phasing out of Legacy CSP, stricter licensing enforcement, and a 5% surcharge on annual subscriptions paid monthly mean MSPs must educate clients and adjust their sales strategies accordingly. At the same time, Microsoft’s shift away from smaller EA agreements (now requiring 6,000+ licenses) opens the door for cloud service providers (CSPs) to gain new business from customers who no longer qualify for enterprise-level agreements.  

So, what do these changes really mean for your business? How can you ensure your clients stay compliant without unnecessary cost increases? Read on for a breakdown of the most critical updates and how you can position your MSP for success in 2025 and beyond.

First, a Little History on Microsoft Licensing

For the most part, Microsoft licensing can be quite straightforward, but it also has its complexities. Before the NCE model came along, there were two main players directing Microsoft licensing: the CSP organization and the Volume Licensing organization (NCE). The Microsoft volume license team won the internal battle and Microsoft is gradually streamlining the subscription model’s infrastructure. This is why a Microsoft partner has the ability to sell volume licenses, perpetual licenses, or subscriptions.

To understand the playing field a little bit better, Microsoft has three different license sales teams.  These are: Microsoft partners who handle unmanaged activities (SMB and SMC), Microsoft Sellers from the LSA organization (SMC and Enterprise), and Microsoft’s direct sellers (Enterprise). Typically, a Microsoft seller manages an account list of over 400 clients. A typical MSP has only 25–40 accounts. As a result, something needed to change at Microsoft.

Microsoft started to alter this approach in the early 2020s as they increased the quota or license deployments and management, delegating more decision-making responsibilities to partners instead of direct Microsoft or contracted sellers. Parnters knew this as the EA limits or CAPS.  Microsoft sellers are only allowed to handle Enterprise agreements (or MPSA). In the early 2020s, the minimum quantity per subscription was 250 licenses. This limit increased to 500 licenses in 2022, and on January 20, 2025, Microsoft set the minimum licenses for EA at 6,000 licenses per subscription.

Clients must have at least 6,000 licenses per subscription to renew an EA agreement. Microsoft sellers won’t get commission for sales below this target. Consequently, the CSP is now an affordable option for up to 6,000 licenses per subscription.

Now that we understand the new playing field, let’s look at the changes that have happened. We’ve compiled a comprehensive list of the upcoming pricing changes known to Microsoft Tier 1 partners.

An Overview of Microsoft 365 Price Increases and Licensing Changes:

• Legacy CSP Transition: Microsoft is is phasing out Legacy CSP by the end of the customers’ license terms (July–October 2025). It will automatically convert to NCE with a new subscription ID.
• Site/Tenant License Introduction: Microsoft is introducing site/tenant licenses, starting with the Internet of Things (IoT). This change is significant because the legacy CSP model operates on tenant-wide licenses, while the NCE operates on license-specific grants. By 2026, Microsoft will require a license grant for each user/device that uses Microsoft 365 services, eliminating the option to purchase a single license for universal access (tenant-wide grants).
• End of Support for Legacy CSP Licenses: Starting October 2025, Microsoft will no longer support Legacy CSP licenses. Legacy CSP Office 365 services will be deprecated, and tenant-wide license grants will end. This means that each user must have a license for the services they are using (the NCE model).
• Nonprofit E1: Legacy Nonprofit E1s can be upgraded to $0 E1 only. New NCE E1s are not eligible for nonprofit pricing by Microsoft. Submit a ticket before upgrading.
• EU Teams Separation Agreement: Effective April 4, 2024, you cannot order Teams bundles. As of October 1, 2024, new licenses exclude Teams. Adding Teams to a subscription will increase costs by around 7%. To avoid this Teams separation penalty, you needed to ensure a subscription grant with Teams was in place before October 1, 2024. The exception to the Team separation SKU is the upgrade to Business Premium. The special Business Premium offer includes Teams, providing an additional 7% savings, and is valid until March 31, 2025.
• Microsoft 365 Suites + Teams: Available only for existing subscriptions (NCE or legacy).
• New Subscriptions: No Teams suite + Teams, with an approximate 7% price increase over Microsoft 365 suite bundles.
• Nonprofit 365: Microsoft is dicontinuing monthly options; only yearly subscriptions will be available starting around April 1, 2025.
• Annual Subscription Surcharge: Microsoft will add a 5% surcharge to annual subscriptions paid monthly, with no more $0 floats. This means that if you sign up for an annual subscription with monthly payments, the monthly payments after April 1, 2025, will be 5% higher to cover the “float.”
• NCE License Enforcement Policy: Starting around October 2025, you will no longer be able to buy a single license for tenant-wide grants on services. For instance, if you require conditional access, every user will need an Entra P2 license. The legacy CSP license services will be depreciated. NCE license rules are a specific license grant. NCE licenses grant are not tenant wide unless you purchase a tenant-wide SKU.
• EA Agreement lower limits are now set at 6,000+ licenses per subscription.  Microsoft sellers will not receive quota compensation for EA agreements with fewer than 6,000 licenses per subscription or adjustment to their quota. This is effective January 20, 2025 on new and renewal EAs. It offers a good opportunity for you. Microsoft is reducing direct sales headcount, which reduces competition from Microsoft.
• CSP Agreements can be made for accounts up to 5,999 users. Microsoft is removing the incentive cap that was at 2,500 licenses per subscription.

For a deeper dive, please visit the Microsoft Price Increase Announcement.

Time to Make Some Strategic Decisions

To manage this situation, review your client mix and make a strategic decision based on the Microsoft SKU. At KAMIND, we purchased a license SKU that includes Teams and gradually upgraded users to the combination SKU. You can use the same strategy with a Business Premium SKU: Purchase one SKU and upgrade client licenses accordingly.

For accounts with Business Standard or Business Basic that want to convert, submit a ticket to Microsoft to upgrade to the Business Premium promotional SKU. Microsoft typically approves upgrades from lower to higher price SKUs. Remember, if you need to make changes or you’re uncertain, you have 168 hours to reverse the conversion, so act quickly within this window. Microsoft is not very friendly on credits if you make a mistake and you are beyond the 168-hour window.

Your Next Action Steps for Microsoft’s Latest Price Increases

As a result of these changes, here are four important steps all MSPs should take:

1. Keep in mind that most of the changes will take place on April 1, 2025.
2. Let your Microsoft licensing clients know immediately about these changes.
3. Discuss these changes with any client that has an EA agreement with less than 6,000 users. They were impacted as of January 20, 2025 (not April 1).
4. Encourage your clients to pay their subscriptions annually to avoid the 5% surcharge.

If you missed Matt Katzer’s last article, check out: Integrate Microsoft Copilot Into Your MSP To Stay Ahead Of Competitors