On 1 July 2026, Microsoft’s new commercial pricing for Microsoft 365 took effect. The changes were announced on 4 December 2025, which gave organisations seven months of lead time to assess the impact. Despite that runway, a significant number of enterprises are still working through the implications at renewal, partly because the headline per-SKU figures understate what the changes actually mean in practice for organisations with large Microsoft estates.
This blog sets out exactly what changed, the precise figures involved, what is excluded from the update, and what the practical commercial implications are for organisations whose renewals fall after the 1 July date.
Exactly What Changed: The Official Figures
The following price changes are sourced directly from Microsoft’s official pricing and packaging update page and apply to annual commitment pricing in US dollars per user per month for commercial customers. All prices shown are for Teams-included variants.
Microsoft 365 E3 increased from $36.00 to $39.00 per user per month, a rise of 8.3 percent. Microsoft 365 E5 increased from $57.00 to $60.00 per user per month, a rise of 5.3 percent. Office 365 E3 increased from $23.00 to $26.00 per user per month, a rise of 13 percent. Microsoft 365 Business Basic increased from $6.00 to $7.00 per user per month, a rise of 16.7 percent. Microsoft 365 Business Standard increased from $12.50 to $14.00 per user per month, a rise of 12 percent. Microsoft 365 F1 increased from $2.25 to $3.00 per user per month with Teams, a rise of 33 percent. Microsoft 365 F3 increased from $8.00 to $10.00 per user per month, a rise of 25 percent.
The following plans are unchanged: Microsoft 365 Business Premium remains at $22.00 per user per month. Office 365 E1 remains at $10.00 per user per month. Microsoft 365 E7, which launched on 1 May 2026, is not part of this update and its pricing of $99.00 per user per month is unaffected. Standalone Microsoft Teams and standalone Microsoft 365 Copilot add-on licences are also excluded from this update.
Microsoft’s official pricing and packaging update page provides the complete pricing tables for commercial, government, and nonprofit customers, and is the authoritative reference for all figures in this update. Organisations should consult Microsoft’s official 2026 M365 pricing and packaging update directly rather than relying on secondary sources, as local market pricing adjustments apply in certain regions based on currency and market conditions.
When the New Prices Apply to Your Organisation
The effective date of 1 July 2026 applies to new subscriptions and to renewals. Existing customers do not automatically move to the new pricing on 1 July. Instead, they remain on current pricing until their next renewal date after 1 July 2026. This means that organisations whose EA or MCA-E renewal falls in August 2026 will face the new pricing at that renewal. Organisations whose renewal falls in March 2027 will not face the new pricing until that date.
Organisations that renewed before 1 July 2026 locked in current pricing for the duration of their new term. A three-year renewal completed before 1 July 2026 therefore protects the organisation from the price increase until that new term expires. Organisations that were unable to execute a renewal before the deadline are now on the trajectory toward the new pricing at their next renewal, and the planning work shifts from price lock to optimisation.
The Compounding Effect With the November 2025 EA Discount Removal
The July 2026 price increases do not arrive in isolation. In November 2025, Microsoft removed the automatic volume-based discounts that had been embedded in Enterprise Agreement pricing for large customers for many years. Under the previous model, organisations with larger seat counts received automatic tiered discounts, labelled Level B, C, and D, that reduced the per-user list price by a meaningful percentage based on total licence volume.
The removal of those volume discounts means that organisations that previously benefited from Level D pricing, the deepest discount tier, are now paying closer to list price on their per-user cost, before the July 2026 increase is even applied. For a large enterprise on Microsoft 365 E5 that previously received Level D discounts and is renewing after July 2026, the combined commercial impact of the discount removal and the price increase can represent an effective increase in annual Microsoft 365 cost of between 15 and 23 percent, depending on the specific discount level previously held.
This compounding impact is the most significant commercial development in Microsoft licensing in several years, and it is the context in which any renewal conversation in the second half of 2026 and through 2027 needs to be understood. The headline per-SKU increase of 8.3 percent for E3 is not the number that reaches the CFO. The blended increase across the full Microsoft estate, net of lost volume discounts, is the number that matters.
Gartner research on Microsoft licensing commercial impact and renewal strategy addresses the compounded financial effect of the November 2025 discount removal and the July 2026 price increases across different organisation sizes and EA configurations. Their Gartner Microsoft licensing and enterprise renewal strategy research provide benchmarking frameworks for modelling the true cost impact and the negotiation approaches that are most effective in the current Microsoft commercial environment.
What Microsoft Is Adding to Justify the Increases
Microsoft has framed the July 2026 price changes as a value expansion rather than a straightforward price increase, and it is worth being precise about what is being added and to which plans, because this affects the commercial calculation for organisations already licensing some of these capabilities as separate add-ons.
Microsoft 365 E3 and Office 365 E3 are gaining Microsoft Defender for Office 365 Plan 1, which provides Safe Links and Safe Attachments for email and collaboration security. This is a genuine addition for E3 customers who were not already purchasing Defender for Office 365 Plan 1 separately. For those who were, the $3.00 per user per month E3 increase partially offsets the add-on cost that can now be removed.
Microsoft 365 E3 is also gaining Intune Remote Help, Intune Advanced Analytics, Intune Plan 2, Intune Privilege Management, Microsoft Cloud PKI, and Intune Application Management, with rollout beginning in June 2026 and completing by 1 August 2026. Microsoft 365 E5 is gaining Security Copilot access, measured in Security Compute Units at an allocation of 400 SCUs per 1,000 licensed users per month, along with Intune Endpoint Privilege Management, Enterprise Application Management, and Microsoft Cloud PKI.
Across all Business and Enterprise plans, Copilot Chat is gaining inbox and calendar awareness and access to Word, Excel, and PowerPoint agents. This is the Copilot Chat experience, not the full Microsoft 365 Copilot licence, which remains a separate paid add-on.
The Practical Commercial Response
For organisations whose renewal falls after 1 July 2026, the commercial priority is to arrive at the renewal conversation with three things in hand.
First, an accurate picture of current licence utilisation across the estate. Users who have not logged in within the past ninety days, users assigned to higher tier plans than their actual usage requires, and service accounts or shared mailboxes with full licences are the most common sources of seat count waste. Removing these before renewing means the new per-user price applies to a smaller, more accurate population.
Second, a plan mix review that accounts for the July 2026 bundling changes. The addition of Defender for Office 365 Plan 1 to E3 changes the comparative value of E3 versus E5, because one of the features that previously justified an E5 upgrade for email security is now present in E3. Organisations that moved a proportion of their estate to E5 specifically for Defender for Office 365 Plan 1 should assess whether a tier rationalisation is commercially justified at renewal.
Third, an understanding of the negotiation landscape. While Microsoft has moved away from automatic volume discounts, the commercial terms available through different licensing channels, including Enterprise Agreement, Microsoft Customer Agreement for Enterprise, and Cloud Solution Provider, have not converged entirely. The spread between a well-negotiated CSP proposal and an underprepared EA renewal is currently meaningful and worth modelling before committing to a channel.
The Register has covered the July 2026 Microsoft pricing changes and the commercial dynamics of the current Microsoft renewal landscape with the kind of independent analysis that helps enterprise buyers understand what is actually negotiable and what is not. Their The Register Microsoft 365 pricing and enterprise renewal coverage provide the market-level context that supplements the official Microsoft communication and helps organisations form a commercially informed view of the renewal options available to them.
Government and Nonprofit Considerations
Government pricing is being adjusted in line with commercial pricing. However, in accordance with federal regulations, for government suites where the total increase exceeds 10 percent, the increase will be phased over multiple years, with no more than a 10 percent annual increase applied until the full adjustment is complete. Nonprofit pricing is adjusted in line with commercial pricing through a fixed percentage discount that is maintained at 60 to 75 percent depending on the product. Education pricing is unchanged as part of this update.
Conclusion
The 1 July 2026 Microsoft 365 pricing update is the most commercially significant Microsoft licensing event for enterprise customers since the 2022 price changes, and its compounding effect with the November 2025 discount removal makes the total financial impact larger than the headline per-SKU figures suggest. Organisations that approach renewal with accurate utilisation data, an up-to-date plan mix analysis, and a clear understanding of the commercial landscape will achieve better outcomes than those responding reactively. The new pricing is now in effect. The only variable that remains within the customer’s control is the quality of preparation they bring to the renewal conversation.
The Sourcing Industry Group publishes research on enterprise software renewal strategy and the specific commercial preparation disciplines that produce the best outcomes in major vendor renewal negotiations. Their SIG enterprise software renewal strategy and commercial preparation research provide practical frameworks for building the data-driven renewal preparation that Microsoft pricing changes of this scale require.
