Microsoft 365 E3 to E5: When Should You Upgrade?

Introduction 

You're running Microsoft 365 E3. It works fine for email, Office apps, Teams, and cloud storage. Your team has what they need. 

But somewhere between budget reviews and security incidents, someone asks whether E5 makes sense. The cost hits you first: roughly $250 per person annually more than E3. 

For a 500-person organization, that's $125,000 additional spending per year. 

That matters. Most companies flinch at it. 

What they often miss: E5 solves problems you're already paying to solve elsewhere. You're spending money on separate security tools, compliance consulting, and business intelligence platforms. E5 consolidates those costs while adding capabilities your team actually needs. 

How Much Does Microsoft 365 E5 Cost? 

Pricing and Licensing 

E3 costs approximately $33.75 per user per month ($405 annually). 

E5 costs approximately $54.75 per user per month ($657 annually). 

The difference: $252 per user annually, or roughly 60% more expensive. 

For 1,000 people, that's $252,000 more per year. 

Important Change (April 2024) 

Microsoft stopped bundling Teams with new E3 and E5 licenses in April 2024. New customers must buy Teams Enterprise separately ($5/month). Existing E3 and E5 customers keep Teams included at renewal. 

Where the Real Cost Actually Is 

A manufacturing company we've worked with spent $2.3 million annually on separate security tools, compliance consulting, and incident response—on top of E3 licenses. When they moved to E5, they eliminated vendor overlap and automated manual processes. The E5 premium paid for itself through consolidation. 

The real math: What are you spending on third-party security tools? Compliance consulting? BI platforms? Separate phone systems? E5 addresses all of these. 

What Features Does E5 Include? 

Exclusive E5 Features: Security 

Advanced threat detection: Defender Plan 2 catches zero-day attacks and behavioral anomalies. Plan 1 (in E3) catches known threats only. 

Extended detection: Defender XDR shows threats across endpoints, email, cloud apps, and identity in one view. E3 requires manually connecting separate tools. 

Real-time identity protection: Entra ID P2 blocks impossible locations, compromised credentials, and unusual access patterns automatically. 

Advanced data protection: ML-powered DLP understands context. E3's rule-based DLP requires you to specify exactly what to block. 

Exclusive E5 Features: Analytics 

Power BI Pro: E5 includes it. E3 users get the free tier with real limitations. Power BI Pro means: 

• Finance closes the books in days, not weeks 
• Sales tracks pipeline in real time 
• Operations spots inefficiencies instantly 
• Executives make decisions with current data 

Workplace Analytics: AI-driven insights into meeting patterns, collaboration effectiveness, and burnout risk. 

Exclusive E5 Features: Voice and Communication 

Teams Phone Standard: Cloud-based phone system. E3 requires separate solutions. 

Unlimited audio conferencing: Included in E5. E3 users add this as a paid extra. 

Exclusive E5 Features: Compliance 

Advanced eDiscovery Premium: When regulators request data, Premium saves months of manual work. 

Automated governance: AI-driven data classification, retention policies, and lifecycle management. 

Is E5 Worth the Cost? 

When E5 Pays for Itself 

You should upgrade if you're currently spending money on what E5 solves: 

• Third-party security tools: E5 consolidates them. Microsoft's telemetry sees billions of threats daily—more than any single tool can detect. 
• Compliance consulting: Advanced eDiscovery and governance reduce consulting costs by 40% or more. 
• Separate BI platforms: E5 includes Power BI Pro. No additional tool needed. 
• Separate phone system: Teams Phone replaces dedicated telecom, dropping costs. 
• Month-end close headaches: Real-time analytics cuts close time from 8 days to 3 days (real example). 

When E3 Is Fine 

E3 works if you handle no regulated data, don't make data-driven decisions, don't need cloud phones, and have no security incidents. These organizations exist, but they're rarer than you'd think. 

What Security Changes Between E3 and E5? 

E3 security: Solid foundation. Reactive detection. You configure rules; it enforces them. 

E5 security: Proactive. Advanced Defender catches zero-day attacks before they spread. Conditional access blocks threats automatically. Advanced DLP understands context, not just rules. 

In practice: Ransomware hits an E5 organization. System detects the initial compromise, isolates the endpoint, blocks lateral movement, logs everything. E3 organization catches it once files are encrypted. Recovery costs now instead of prevention costs. 

Can You Upgrade Without Disruption? 

Yes. Go to your Microsoft 365 admin center, find "Switch plans" under Billing, select users, and complete the transaction. 

No data migration. No downtime. All email, files, configurations stay exactly as they are. Users log in the next day with new capabilities available. 

You can upgrade departments gradually—finance and IT first, expand after validating adoption. 

Should You Upgrade Everyone or Mix E3 and E5? 

Right-Sizing 

You don't have to pick one. Mix them strategically. 

Upgrade to E5: 

• Finance team (Power BI Pro, analytics) 
• IT staff (advanced security) 
• Executives (decision-making data) 
• Anyone handling regulated data 

Keep E3: 

• General users without analytics needs 
• Frontline workers 
• Anyone not handling sensitive data 

Or use add-ons: 

• E5 Security add-on ($9/month): Advanced security without Power BI 
• E5 Compliance add-on ($9/month): Advanced compliance without voice 

For 1,000 people, right-sizing (200 on E5, 800 on E3) saves $112,500 annually versus upgrading everyone. 

Is Office 365 E3 Being Discontinued? 

No. E3 isn't going away. Existing customers renew indefinitely. You can upgrade individual users anytime. 

What changed: New customers must buy E3 (no Teams) plus Teams Enterprise separately as of April 2024. This was regulatory pressure in Europe, but Microsoft applied it globally. 

How Do You Decide? 

Ask these questions: 

• Do you handle regulated data (healthcare, finance, PII)? 
• Do people use data for decisions (finance, sales, operations)? 
• Are you running a separate phone system? 
• Have you had a security incident recently? 
• Do you spend money on separate security, BI, or compliance tools? 

Yes to any of these = E5 (or specific add-ons) makes financial sense. 

No to all = E3 is appropriate. 

Most enterprises answer yes to at least two. 

FAQ: Common E3 to E5 Questions 

Is Microsoft 365 E5 better than E3?

It depends on your needs. E5 is objectively more capable, but capability doesn't equal value for every organization. E5 is better if you need advanced security, compliance, analytics, or voice. E3 is better if you have straightforward needs and want to minimize costs. 

What are the main benefits of upgrading to E5?

Advanced threat detection instead of known-threat detection. Real-time identity protection. Advanced eDiscovery for compliance. Power BI Pro for faster decision-making. Teams Phone for cloud-based calling. Automated data governance. 

Why should most companies upgrade?

E5 solves problems you're already paying to solve elsewhere. Consolidating vendors, eliminating manual workarounds, and automating compliance usually pays for E5 within 18 months.

Ready to Decide? 

If E5 looks like the fit, the upgrade is straightforward. No disruption. New capabilities available immediately. 

Grab a spreadsheet and map what you're currently spending on security tools, compliance consulting, BI platforms, and phone systems. That number versus the E5 premium usually clears up the decision. 

Questions about your specific situation? 

Get help evaluating your Microsoft 365 licensing strategy — We can walk through your actual costs and show what E5 changes for your organization.