Microsoft 365 Licensing Explained (2026): Plans, Prices, What's Included and How to Choose

Microsoft 365 licensing has a reputation for being confusing, and it earns it: there are suites and add-ons, plans that were renamed, a 300-user cutoff that changes which plans you can buy, and prices that moved again in July 2026. This guide puts it in one place. It explains how the licenses are organized, what each plan includes, what the 2026 changes mean, how to buy and assign licenses without wasting money, and how to choose. Every price and rule below comes from Microsoft's own pages, linked as we go, and was last checked in November 2026. Prices are US list prices per user per month on an annual commitment; your region, partner or agreement can differ.

Verified November 2026. Prices and plan contents were checked against Microsoft's pricing pages and Microsoft Learn this month. Microsoft changes licensing often, so confirm against the links in the last section before you buy.

The 60-second version

The rest of this guide explains the reasoning, so you can check the table against your own situation instead of trusting it blindly.

How much does Microsoft 365 cost per user in 2026?

Microsoft 365 costs from $7 per user per month (Business Basic) to $99 (Microsoft 365 E7) at US list prices on an annual commitment. Most small businesses pay $14 (Business Standard) or $22 (Business Premium), most enterprises pay $39 (E3) or $60 (E5), and Frontline plans start at $3. Teams-free versions cost less, and Copilot is an extra $30 per user per month on top of an eligible plan.

How Microsoft 365 licensing is organized

Think of licensing in three layers. Getting these straight removes most of the confusion.

• Suites. The plan you buy per user: Business Standard, Office 365 E3, Microsoft 365 E5 and so on. A suite bundles services such as Exchange Online, SharePoint, OneDrive, Teams and the Office apps.
• Add-ons. Extra capabilities you layer on top of a suite for the users who need them: Copilot, the Defender and Purview suites, Entra ID plans, Power BI and more.
• Standalone services. A single service sold on its own, such as Exchange Online Plan 1, SharePoint Plan 1 or 2, OneDrive Plan 1 or 2, Project or Visio plans. Microsoft's plan options page lists them, and you can combine Enterprise, Business and standalone plans in one tenant.

The plan families

Microsoft 365 vs Office 365 (and the renamed plans)

Office 365 plans (E1, E3, E5) are the cloud collaboration services. Microsoft 365 E3 and E5 include the matching Office 365 plan and add Windows Enterprise and Enterprise Mobility + Security, which cover device and identity management. The Business plans carry the Microsoft 365 name but are their own family. Old names still turn up in documentation and invoices, so it helps to know the mapping from Microsoft's plan options page:

• Business Basic was Office 365 Business Essentials.
• Business Standard was Office 365 Business Premium.
• Business Premium was Microsoft 365 Business.
• Apps for business was Office 365 Business, and Apps for enterprise was Office 365 ProPlus.

How many users can Microsoft 365 Business have?

Up to 300 in total across all Business plans, not 300 per plan. Basic, Standard, Premium and Apps for business count together toward the same cap.

Microsoft's Business plans are designed for organizations with up to 300 users, and the limit applies to the whole family together. If you have 250 seats of Business Premium you can add only 50 more seats across all Business plans. Microsoft says it reserves the right to enforce the 300-license tenant limit and tells larger organizations to move to Enterprise plans. Because you can combine families in one tenant, a company that crosses 300 does not have to restart: buy Enterprise licenses for the new users or move people over in stages.

Microsoft 365 Business plans

A few details that decide real-world choices. Business plans include Exchange Online Plan 1, while E3 and E5 include Plan 2. Azure Information Protection is part of Business Premium but isn't included in Basic or Standard. Business Premium is also the only Business plan built for security and device control, which is why Microsoft positions it as the default for SMBs; its security benefits page lists what it adds. Business Basic is free for eligible nonprofits and Business Standard and Premium are heavily discounted for them.

Business Standard vs Business Premium: which should you buy?

Buy Standard if you only need the desktop Office apps with Teams and email. Buy Premium if you hold customer data, take regulatory risk or have any remote or personal devices. Premium costs $8 more per user per month ($22 versus $14) and adds advanced threat protection and device management. If anyone edits real documents in desktop Excel or Word, skip Basic, which has no desktop apps.

Enterprise plans: Office 365 and Microsoft 365 E-series

Prices for E1 through E5 are from Microsoft's 2026 pricing and packaging update. E7 is from Microsoft's announcement and plans pages.

What E3 includes

Microsoft 365 E3 is the workhorse: the desktop Office apps, Exchange Plan 2, SharePoint, OneDrive, Teams, Windows Enterprise, and foundational identity with Microsoft Entra ID P1 and basic threat protection. On the compliance side it covers manual sensitivity labeling, core data loss prevention, standard audit and core eDiscovery. In the 2026 packaging update Microsoft added Defender for Office 365 Plan 1, Intune Plan 2, Intune Remote Help and Advanced Analytics and Copilot Chat enhancements to E3, rolling out through summer 2026.

Microsoft 365 E3 vs E5: what is the difference?

E5 is E3 plus the Defender and Purview suites, Power BI and phone system features, for $21 more per user per month ($60 versus $39). Pick E5 when you need advanced security and compliance for the same people; stay on E3 when you don't.

Per Microsoft Learn, E5 is E3 plus the Microsoft 365 Defender Suite (Defender for Office 365 Plan 2, Defender for Endpoint, Entra ID Plan 2, Defender for Identity, Defender for Cloud Apps) and the Microsoft 365 Purview Suite (automatic classification, insider risk management, communication compliance, advanced audit with 10-year retention, eDiscovery Premium, information barriers and more). It also includes Power BI, Phone System and Audio Conferencing (a Calling Plan is still extra), and Security Copilot for eligible customers.

Here is the arithmetic that settles most E3 versus E5 debates. At list prices, E3 is $39. Microsoft sells the Defender Suite and Purview Suite as add-ons at $12 each. E3 plus both is $63, which is more than E5 at $60. So if you need both security and compliance for the same users, E5 is the cheaper route; if you need only one of them, E3 plus that add-on usually wins. The suites are not identical to E5's contents in every detail, so confirm the specific features you rely on in Microsoft's E3, E5 and E7 comparison.

Microsoft 365 E7, the Frontier Suite

E7 became generally available on May 1, 2026 at $99 per user per month ($90.45 without Teams). It includes everything in E5 plus Microsoft Copilot, the Microsoft Entra Suite and Microsoft Agent 365, which governs AI agents. Agent 365 is also sold on its own at $15 per user per month. As a sanity check, E5 ($60) plus Copilot ($30) plus Agent 365 ($15) is already $105 before the Entra Suite, so the bundle is cheaper than buying those pieces separately. It only makes sense if you will actually deploy Copilot broadly; for a limited pilot, E3 or E5 plus a few Copilot add-on seats costs far less. See Microsoft's general availability post.

Frontline plans (F1 and F3)

Frontline plans are for people who don't sit at a desk: shift workers, store and clinic staff, field teams. They are priced so you can license a whole frontline workforce without paying knowledge-worker rates, and the trade-offs are real.

Two practical points. Frontline licenses give your tenant the 1 TB SharePoint base but do not add 10 GB per license, so a company full of F-licenses grows its storage pool very slowly. And frontline users who need to create documents in Office will hit F1's read-only limit quickly, so move them to F3 or a full plan.

Teams: bundled, unbundled, and priced separately

After regulatory pressure, Microsoft split Teams out of its suites in 2023 and 2024. On November 1, 2025 it changed the rules again: suites that include Teams are available to all customers, new and existing, and the without-Teams versions of Enterprise, Business and Frontline suites got price reductions. Standalone Teams Enterprise lists at $8.55 per user per month, and Teams Essentials at $4. Microsoft's Teams licensing update has the full table.

Which to pick? If your people use Teams chat, meetings or channels at all, buy the with-Teams suite. The without-Teams price is the right choice only if you have standardized on another collaboration product and have a plan to keep Teams off.

Copilot licensing

Copilot is where licensing gets expensive and easy to get wrong, so it is worth being precise.

Copilot is an add-on, not a plan, so every Copilot user also needs an eligible base license. Microsoft lists the $30 add-on price on its Copilot enterprise pricing page, and its Copilot license options page lists the eligible plans: E7 (included), E3, E5, F1, F3, the Business plans, the matching Office 365 plans and several standalone services. Copilot Business is a narrower option, not an equal alternative: it is only available to organizations with up to 300 users on a Business plan, it supports up to 300 licensed users per tenant, and it needs an annual commitment. Enterprise plans such as E3 and E5 use the $30 add-on.

Why Copilot licensing affects SharePoint governance

Copilot reads what each user already has access to, so oversharing becomes a licensing-adjacent problem the moment you buy seats. Audit your sharing before Copilot and see our Copilot oversharing audit. One licensing detail matters here: per Microsoft Learn, SharePoint Advanced Management, the toolset for finding and fixing oversharing, is available once at least one user in your organization is assigned a Copilot license, or with E7, or with a separate add-on. For the full breakdown of Copilot licenses, agents and billing, see Microsoft 365 Copilot licensing explained.

Add-ons worth knowing

Add-ons only help if the right people are licensed. Microsoft's product terms define which features require every covered user to hold the license, so check them before you buy add-ons for a subset and assume the rest of the tenant is protected.

What changed in 2026

Microsoft announced new list prices in December 2025 that took effect July 1, 2026. Existing customers keep their current price until renewal. The changes that matter most:

Microsoft paired the increases with added value that is rolling out through summer 2026: 50 GB more mailbox storage on the Business plans, URL time-of-click protection on Basic and Standard, Defender for Office 365 Plan 1 and Intune capabilities in E3, and Security Copilot, Intune Endpoint Privilege Management and Cloud PKI in E5. Also new this year: E7 reached general availability on May 1, 2026. The full table is on Microsoft's pricing and packaging updates page.

Nonprofit, education and government

• Nonprofits pay much less, once Microsoft validates the organization. From July 2026 the US nonprofit prices are: Business Basic free, Business Standard $3.50, Business Premium $5.50, Microsoft 365 E3 $9.75, E5 $24, F1 $0.75 and F3 $2.50.
• Education uses A1, A3 and A5 plans sold through education agreements or partners, and tenant storage allocations can be more limited than commercial ones.
• Government customers use G3 and G5 plans in GCC, GCC High and DoD, whose features arrive on different schedules from commercial.

How you buy and pay

Where you buy

• Directly from Microsoft online (a Microsoft Customer Agreement or Online Subscription Agreement). You manage licenses in the Microsoft 365 admin center.
• Through a partner (CSP). The partner buys and bills; changes to quantities go through them. Many organizations like this for support and flexibility.
• Through an enterprise agreement. Typically larger organizations with negotiated terms and a Microsoft representative.

Billing and commitment

Most business subscriptions are annual terms. You can usually pay monthly for an annual commitment, but Microsoft prices that option 5% higher than paying annually, as described in its billing announcement. Subscriptions with no term commitment cost more per user than annual ones, so use them only for short-term needs. Always check the billing frequency and the commitment term on a quote before you accept it.

Adding and removing licenses

Per Microsoft Learn's buy or remove licenses guide, you can add licenses at any time and they are available to assign immediately. Removing is harder:

• On a Microsoft Customer Agreement you can remove licenses only within seven days of buying or renewing.
• You can't reduce the license count below the number currently assigned, so unassign users first.
• If you bought through a CSP partner, contact the partner to change quantities.
• For prepaid subscriptions bought with a product key, you can't remove licenses; renew with a smaller key instead.

The practical lesson is to decide your count before the renewal, not after. A license you can't remove costs a full term.

Assigning and managing licenses

Buying licenses is half the work. You still have to assign them correctly, and a messy assignment process is where most waste and most access problems come from.

Use group-based licensing

In the Microsoft 365 admin center you can assign licenses to security groups, mail-enabled groups or Microsoft 365 groups, so access follows group membership instead of one-off clicks. It saves time and avoids drift, but know the limits from Microsoft Learn's group licensing guide:

• Nested groups are not supported. Only users in the first-level group get the license.
• You can assign licenses to a maximum of 20 groups at a time in the admin center.
• Errors surface later on the user object, not when you assign. Check the Errors and issues tab on the product page.
• Every user needs a usage location, or the tenant location is inherited.
• Conflicting service plans cause errors, for example a user with Office 365 E1 directly assigned who then gets E3 through a group.

When moving a user between licensed groups, add them to the new group first, confirm the new license applied, and only then remove them from the old one. Doing it the other way round leaves the user unlicensed until processing finishes.

Reclaim what you don't use

• Review licenses for people who left, changed roles or haven't signed in for months.
• Match tiers to jobs: knowledge workers on E3 or Business Standard, frontline staff on F-plans, shared or room accounts on the cheapest option that works.
• Remember license counts drive SharePoint storage too, so reducing seats can shrink your storage pool.

Licensing and SharePoint, OneDrive and storage

If you manage SharePoint, licensing sets your ceilings. From Microsoft's SharePoint limits page:

• Tenant storage is 1 TB plus 10 GB per purchased license for Business, Microsoft 365 Enterprise, Office 365 and standalone SharePoint plans. A tenant with 100 licenses has 2 TB. Frontline plans give only the 1 TB base.
• Per site the maximum is 25 TB, and you can buy extra storage in 1 GB increments.
• Business plans list up to 300 licensed users, and the other families scale to 500,000 before you need to talk to Microsoft.
• Visio Plan 2 and Project Plan 3 or 5 contribute about 10 GB per license to the pool.
• Over quota: the recycle bin counts toward storage, and a tenant that stays over its limit risks read-only mode.

Storage is usually the first licensing surprise. Why SharePoint says you're using more than your files explains the gap between file size and quota, and four steps to reclaim space comes before buying more storage. To see what is actually consuming your pool, run Smart Storage Analyzer and check how much your tenant is using. For the other numbers that cap a tenant, see the SharePoint limits cheat sheet.

How to choose: a step-by-step process

1. Count users and growth. Under 300 and staying there: Business plans are on the table. Over 300 or heading there: plan on Enterprise.
2. Segment people by job. Desk-based knowledge workers, frontline staff, executives and admins, and shared or service accounts rarely need the same license.
3. Decide on desktop apps. If people use desktop Office, you need Standard or above (Business) or E3 or above (Enterprise).
4. List security and compliance requirements. Device management, phishing protection, data loss prevention, retention, eDiscovery, insider risk. Map each to the suite or add-on that provides it.
5. Decide on Copilot. Start with Copilot Chat. Pilot full Copilot with a defined group, after you have cleaned up permissions. Go to E7 only for a broad rollout.
6. Price the options. Multiply by users, compare E3 plus add-ons with E5, and compare with-Teams against without-Teams only if you have a real alternative.
7. Check the buying channel. Direct, partner or enterprise agreement, plus billing frequency and renewal date.
8. Pilot, then expand. Assign licenses by group, review usage after 60 to 90 days, then adjust at renewal.

Three worked examples (monthly list prices)

The third row shows why segmentation matters: licensing all 400 people on E3 would cost $15,600 a month, so matching the frontline group to F3 saves $4,350 a month at list prices. These figures are illustrations, not quotes. Your agreement, region and any promotions change the numbers.

Common licensing mistakes

• Buying Business Basic and discovering that nobody has desktop Office.
• Passing 300 users on Business plans and not planning the move to Enterprise.
• Licensing everyone at the top tier when only a few need advanced security or compliance.
• Buying Copilot seats before cleaning up permissions and oversharing.
• Choosing the without-Teams suite to save a few dollars, then needing Teams six months later.
• Forgetting that removing licenses is restricted, and missing the renewal window.
• Assuming storage is per user. It is a pooled tenant total, and Frontline licenses barely add to it.
• Trusting an old blog post. Plans were renamed and prices moved in 2025 and 2026, so check the date on anything you read, including this page.

Where to verify before you buy

Microsoft changes plans and prices often, so treat any summary, including this one, as a starting point and confirm in the sources of record.

Microsoft sources

• Microsoft 365 for business: plans and pricing
• Microsoft 365 Enterprise: compare plans and pricing
• Microsoft 365 pricing and packaging updates (effective July 1, 2026)
• Microsoft 365 and Office 365 plan options (service availability by plan)
• Microsoft 365 service descriptions (feature-level detail per plan)
• Compare Copilot in E3, E5 and E7
• License options for Microsoft Copilot
• Update to Microsoft 365 and Teams licensing
• Buy or remove licenses for a Microsoft business subscription
• Assign licenses to a group in the Microsoft 365 admin center

Helpful third-party tools

These are independent resources, so verify what you take from them against the Microsoft pages above.

• M365 Maps: side-by-side licensing diagrams and a record of product renames.
• Infused Innovations licensing table: a side-by-side table of Office 365 and Microsoft 365 plans.
• A Guide to Cloud licensing simplifier: an interactive plan comparison tool.

Make licensing easier to live with

If you would like a second opinion on your license mix or a Copilot readiness review, get in touch.

Related

• SharePoint limits cheat sheet (2026)
• SharePoint storage quota exceeded: four steps to reclaim space
• Audit "Everyone except external users" before Copilot
• SharePoint permission levels explained
• SharePoint governance: complete reference