Growth Margin — what it is and how it works

Introduction

Starting October 2026, Microsoft introduces Growth Margin, a new margin available to CSP partners in addition to the existing Base Margin. Growth Margin rewards partners who drive qualifying customer growth — for example, by selling a product a customer has never had before, significantly expanding an existing subscription, or shifting a customer toward higher-value products.

This article covers everything in one place: what Growth Margin is, the terms used around it, the three scenarios that qualify for it, which products are eligible, and — further down — exactly how it is calculated and how it flows through the Platform's Distributor → Seller → Customer channel, with a full worked example.

Growth Margin changes the economics between Microsoft and the Partner (in the Platform's channel model, the Distributor or Direct Bill partner). It does not set, suggest, or limit the final price charged to the Customer.

In this article:

• What is Growth Margin?
• Key terms
• How partners earn Growth Margin — the three growth scenarios
• Which products are eligible
• What stays the same
• Customer impact
• How Growth Margin flows through the channel
• Order of operations: margin first, promotion second
• Cost Price path vs. Retail Price path
• Worked example
• What partners actually see on the platform
• Growth Margin pass-through to Sellers
• Growth Margin on Invoices
• What changes at seat increases, renewals, and cancellations
• Summary

What is Growth Margin?

Under the standard CSP model, a Partner earns a Base Margin — the standard discount off the Microsoft list price — on business as usual, meaning renewals and ongoing Subscriptions.

Beginning October 2026, on a defined set of enterprise SKUs, a Partner can additionally earn Growth Margin when a transaction meets one of three qualifying growth scenarios. Growth Margin is added on top of Base Margin, not instead of it:

Figure 1: Growth Margin is earned on top of Base Margin to form Total Margin.

Base Margin + Growth Margin = Total Margin

Growth Margin is Partner economics, not a customer discount. It changes what the Partner pays Microsoft; it does not set, cap, or suggest the price the Partner charges its Customer — the Partner decides that independently, as always. If a transaction does not qualify for Growth Margin, only Base Margin applies — Growth Margin is never a replacement for Base Margin, only an addition to it.

Eligibility is evaluated at the Customer's Tenant level and is locked in at the moment the transaction is completed, so it must be confirmed before the deal is placed — it cannot be corrected afterwards.

On the platform's ordering screens, this combined result is what a Partner actually sees. Ordering a subscription shows a strikethrough "regular" price next to a lower, final price — and that final price already has every applicable reduction (Base Margin, Growth Margin, and any Promotion) combined into one number:

For a worked example showing exactly how that combined price is calculated, see the Worked example section below.

Key terms

The list below explains the terms used throughout this article.

• CSP (Cloud Solution Provider): the Microsoft partner program and business model under which Partners purchase Subscriptions from Microsoft at a discount (margin) and resell them to Customers.
• Base Margin: the standard, existing margin a Partner earns on business as usual — renewals and ongoing Subscriptions.
• Growth Margin: the new margin introduced in October 2026, earned in addition to Base Margin when a transaction qualifies under one of the three growth scenarios.
• Total Margin: Base Margin + Growth Margin combined — the full margin a Partner earns on a qualifying transaction.
• Channel Cost Price: the Cost Price with Promotion applied, but never adjusted for Growth Margin — the basis the Distributor charges downstream to the Seller.
• Channel Retail Price: the Retail Price with Promotion applied, but never adjusted for Growth Margin — the basis visible to the full channel and the Customer.
• Tenant: a Customer's Microsoft cloud organization/account environment, containing all their Subscriptions and users across every channel. Growth Margin eligibility is always assessed at this level.
• New-to-Offer (NTO): a growth scenario where the Customer has not held a given product on their Tenant within the look-back period.
• Seat Expansion: a growth scenario where the Customer significantly increases the seat count of a product they already own.
• Strategic SKU Mix: a growth scenario where the Customer shifts adoption toward a higher-value (target) product relative to a related base product.
• Look-back period: the historical window Microsoft checks to decide whether a product is genuinely new to a Customer's Tenant. Three years by default.
• SKU (Stock Keeping Unit): a specific product offering or subscription plan code.
• EA (Enterprise Agreement): a Microsoft volume-licensing contract typically used by large enterprises; products held under an EA still count toward a Customer's Tenant history for Growth Margin eligibility.
• Extended Service Term (EST): the period a Subscription continues after its term ends without being renewed. EST seats count toward seat totals for eligibility, but do not themselves earn Growth Margin.

How partners earn Growth Margin — the three growth scenarios

A transaction can qualify for Growth Margin under exactly one of three scenarios. New-to-Offer and Seat Expansion are mutually exclusive — a transaction qualifies for one or the other, never both. Strategic SKU Mix can occur alongside either of the other two. In every case, Growth Margin rates never stack: if a transaction happens to meet the criteria for more than one scenario, only the single highest applicable rate is applied.

Figure 3: The three growth scenarios that qualify a transaction for Growth Margin.

1. New-to-Offer (NTO)

A Customer is New-to-Offer for a product if they have not held that product on their Tenant within the look-back period (by default the past three years). This is checked across every Microsoft channel and Partner the Customer has ever used — not only the current CSP relationship.

Example: A Customer has no existing Microsoft 365 E5 seats on any channel (CSP, EA, or direct). The Partner sells 300 Microsoft 365 E5 seats, meeting the minimum seat threshold for that SKU. 

Result: the transaction qualifies as New-to-Offer. All 300 newly purchased seats earn Total Margin.

A product can qualify as New-to-Offer only once per Customer Tenant within the 3-year look-back period.

How to qualify — reference:

2. Seat Expansion

A Seat Expansion occurs when a Customer significantly increases the seat count of a product they already own. Qualification requires both a minimum seat count and an expansion multiple (for example, the new seats must at least equal the existing seat count). Timing changes how the margin applies:

• Mid-term: the incremental seats must be placed on a new Subscription. Only those new seats earn Growth Margin; the original seats stay at Base Margin until their term ends.
• At renewal: no new Subscription is needed — all seats (existing and new) earn Growth Margin for the renewed term.

Example (mid-term): A Customer has 400 Microsoft 365 E5 seats on a Subscription running through December. In June, the Partner sells 600 additional seats mid-term. This exceeds both the minimum seat threshold and the expansion multiple (600 new vs. 400 existing). 

Result: the 600 new seats are placed on a new Subscription and earn Total Margin; the original 400 seats continue at Base Margin until December, when they can be consolidated onto the Growth Margin Subscription.

Example (at renewal): The same Customer instead reaches their scheduled renewal with 400 seats and expands by 600 at that point, for 1,000 total. 

Result: because this happens at renewal, no new Subscription is required and all 1,000 seats earn Total Margin for the new term.

Unlike New-to-Offer, a Customer can qualify for Seat Expansion every time the expansion requirements are met — there is no once-per-tenant limit.

How to qualify — reference:

3. Strategic SKU Mix

A Strategic SKU Mix rewards a Customer shifting adoption toward a higher-value product. It always involves two roles: a qualifying (base) SKU the Customer already owns, and a target (strategic) SKU, the higher-value product. Only new seats of the target SKU can earn Growth Margin, and only once a defined ratio — target-SKU seats ÷ combined base-plus-target seats — crosses a minimum threshold (for example 80%).

Example: A Customer has 100 Microsoft 365 E3 seats and no Microsoft 365 E5. The Partner sells 80 Microsoft 365 E5 seats. After the transaction the Customer has 80 Microsoft 365 E5 and 20 Microsoft 365 E3 seats — an 80% Microsoft 365 E5 mix, which clears the threshold. 

Result: the transaction qualifies under Strategic SKU Mix; the 80 new Microsoft 365 E5 seats earn Total Margin.

The base-to-target pairing, minimum seat counts, expansion multiples, and ratio thresholds are all defined by Microsoft and can differ per SKU; always confirm the specific thresholds for the offer being sold before quoting.

The three examples above use round numbers (300 Microsoft 365 E5 seats, 80% Microsoft 365 E5 mix) to show how each scenario works mechanically. The actual minimum seats, expansion rules, and margin percentages are set per product by Microsoft and change periodically — see "Which products are eligible" below, and always confirm current rates before quoting.

How to qualify — reference:

Which products are eligible

Growth Margin applies to CSP license-based offers on a defined set of strategic products. As of September 2026, that list includes:

• Microsoft 365 Copilot
• Microsoft 365 E7
• Microsoft 365 E5
• Microsoft Purview Suite
• Microsoft Defender Suite
• Windows 365 Enterprise

Every product excludes Trial SKUs and Nonprofit, EDU, and Government (and other non-commercial) SKUs. Some products carry additional, product-specific exclusions (for example, Microsoft 365 Copilot Business is out of scope for Microsoft 365 Copilot).

This list reflects Microsoft's CSP Growth Margin guidance as of September 2026, and applies to qualifying transactions completed through June 30, 2027, per Microsoft's current guidance. Because the eligible product list and thresholds are maintained separately by Microsoft and may be revised, always confirm current eligibility and rates before quoting a deal.

What stays the same

Several parts of the CSP model are unaffected by Growth Margin:

• Renewals: if a Customer does not requalify for Growth Margin at renewal, the Subscription simply continues at Base Margin.
• Promotions: customer-facing promotions can still be applied and stack on top of Growth Margin — Growth Margin applies first (reducing the Partner's cost), and any promotion is then applied to the resulting price.
• Subscription transfers: if a Subscription with Growth Margin applied is transferred partner-to-partner, the benefit persists for the remainder of the term.
• Cancellations: the standard CSP 7-day cancellation window applies. Seats can be reduced only while staying above the Growth Margin minimum seat requirement; dropping below the minimum requires cancelling the whole Subscription within the window.
• Trial subscriptions: trial seats are excluded from Growth Margin eligibility and do not count toward minimum seat thresholds. A Customer can still qualify once a trial converts to paid.
• Extended Service Term (EST): EST seats count toward tenant-level seat totals for eligibility, but Growth Margin is not granted on EST SKUs themselves.

Partners can capture Growth Margin more than once for the same Customer — for example, first through a New-to-Offer purchase, then again at a later renewal through Seat Expansion — as long as each transaction independently qualifies.

Customer impact

Customers generally notice no difference. Growth Margin affects Partner-side economics only; it does not change how a Customer buys, uses, or is billed for their products. The only visible change a Customer might occasionally see is an additional Subscription, if the Partner creates one to capture Growth Margin on a mid-term Seat Expansion.

If a Partner does not follow the Growth Margin process (for example, adding seats to an existing Subscription mid-term instead of creating a new one), the Customer's service is not affected — they still receive the seats they ordered. The only consequence falls on the Partner, who misses the additional margin.

How Growth Margin flows through the channel

Growth Margin is a Distributor–Microsoft economics lever (only Distributors and Direct Bill partners earn it). By default, it stays entirely with the Distributor: it never cascades automatically to the Seller, on either pricing path. It never reaches the Customer at all, under any configuration.

Figure 4: Growth Margin is generated at, and by default retained by, the Distributor. It never reaches the Customer.

The Distributor can optionally pass its Growth Margin benefit to a Seller through a dedicated Growth Margin pass-through setting (see "Growth Margin pass-through to Sellers" below). This is strictly all-or-nothing: either the full Growth Margin benefit passes to the Seller, or none of it does — there is no partial pass-through. This is separate from the Distributor's ordinary Price Adjustment (its markup or discount to the Seller), which is configured independently and is not affected by the pass-through setting.

Everything the Distributor charges downstream — the Channel Cost Price (the Cost Price after Promotion, but without Growth Margin) that the Seller sees, the Channel Retail Price (the Retail Price after Promotion, but without Growth Margin) that the Customer sees — is based on the ordinary Cost Price or Retail Price with Promotion applied, never on the Growth-Margin-adjusted figure. The GM-adjusted cost only exists to compute the Distributor's own true cost to Microsoft, and — optionally — the amount passed to the Seller.

Order of operations: margin first, promotion second

Base Margin and Growth Margin are deducted from the Microsoft ERP price additively; any Promotion is then calculated on top of that already-reduced result, not on the original ERP price:

Partner price = ERP × (1 − Base Margin % − Growth Margin %) × (1 − Promotion %)

Two rules govern how this combines with other discounts:

• Specialized Offers take precedence: when a Specialized Offer exists for a SKU, its pricing applies instead, and Growth Margin is not applied on top — the two never stack.
• Customer promotions do stack: an eligible customer-facing promotion is applied after the Growth-Margin-adjusted partner price — margin first, promotion second, exactly as in the table above. The promotion stays visible to the Customer; the margin never does.

Cost Price path vs. Retail Price path

The platform supports pricing a product two ways, and Growth Margin applies under both:

• Cost Price path: each tier (Distributor, Seller) applies a Markup % on top of the Cost Price to compute what it charges the next tier.
• Retail Price path: each tier applies a Discount % off the Customer Retail Price / SRP to compute what it charges the next tier.

The Growth Margin mechanics — how much benefit is generated, how Promotion interacts with it, whether it is retained or passed through — are identical on both paths. Only the formula for what the Seller charges the Customer differs, as shown in the worked example below.

Worked example

Inputs used throughout this example:

• Retail / SRP Price: $100.00
• Cost Price (at Base Margin): $80.00
• Growth Margin: 20% (Distributor-only — does not cascade automatically)
• Promotion: 10% (applies to the full channel, on both the Cost Price and Retail Price tracks)
• Distributor Markup (Cost Price path): 5%
• Distributor Discount (Retail Price path): −10%
• Seller Markup (Cost Price path): 15%
• Seller Discount (Retail Price path): −5%
• Growth Margin pass-through to Seller: enabled for this example

Note on notation: Discount inputs are entered as negative numbers (for example, −10% for the Distributor Discount) simply to mark them as reductions, as opposed to markups (entered as positive numbers, e.g. +5%).

Step 1 — Growth Margin (Distributor–Microsoft only)

Growth Margin is computed on the Retail Price, before any Promotion, and then subtracted from the Cost Price to get the Distributor's own reference cost:

• Growth Margin $ generated = Retail Price × Growth Margin % = $100.00 × 20% = $20.00
• Cost Price (Base Margin basis): $80.00
• Distributor Reference Cost = Cost Price − Growth Margin $ = $80.00 − $20.00 = $60.00

This Distributor Reference Cost ($60.00) never feeds the Channel Cost Price shown downstream — it exists only to compute the Distributor's own true cost (Step 2) and the amount available to pass to a Seller (Step 3).

Step 2 — Promotion (full channel, on both Cost Price and Retail Price)

• Distributor's TRUE COST to Microsoft: $60.00 × (1 − 10%) = $54.00 (Promotion applied on top of the lower, Growth-Margin-adjusted reference cost — this is the Distributor's own economics only)
• Channel Cost Price: $80.00 × (1 − 10%) = $72.00 (NOT Growth-Margin-adjusted — this is the Seller-facing basis)
• Channel Retail Price: $100.00 × (1 − 10%) = $90.00 (visible to the full channel and the Customer)

Step 3 — Distributor prices to the Seller

Cost Price path (markup-based):

• Distributor Sell-For, per Price Adjustment: $80.00 × (1 + 5%) × (1 − 10%) = $75.60 — computed the same way regardless of the pass-through setting, because the Price Adjustment formula does not reference it
• Growth Margin $ passed to Seller: the full $20.00 if pass-through is enabled, or $0.00 if disabled (all-or-nothing, and the same raw amount regardless of path — there is no partial setting at this time)
• Seller's effective cost = (Cost Price × (1 + Distributor Markup %) − passed Growth Margin) × (1 − Promotion %) = ($84.00 − $20.00) × (1 − 10%) = $57.60 if enabled, or $84.00 × (1 − 10%) = $75.60 if disabled
• Distributor's realized margin if pass-through is enabled, against its True Cost of $54.00: $3.60 (6.3%) — they keep only their ordinary 5% markup
• Distributor's realized margin if pass-through is disabled, against its True Cost of $54.00: $21.60 (28.6%) — they keep the markup and the full Growth Margin benefit

Retail Price path (discount-based):

• Distributor Sell-For, per Price Adjustment: $100.00 × (1 − 10%) × (1 − 10%) = $81.00 — same formula regardless of the pass-through setting
• Growth Margin $ passed to Seller: $20.00 (enabled) or $0.00 (disabled) — the same raw amount as on the Cost Price path
• Seller's effective cost = (Retail Price × (1 + Distributor Discount %) − passed Growth Margin) × (1 − Promotion %) = ($90.00 − $20.00) × (1 − 10%) = $63.00 if enabled, or $90.00 × (1 − 10%) = $81.00 if disabled
• Distributor's realized margin if pass-through is enabled, against its True Cost of $54.00: $9.00 (14.3%)
• Distributor's realized margin if pass-through is disabled, against its True Cost of $54.00: $27.00 (33.3%)

Step 4 — Seller prices to the Customer (pass-through stops here)

The Final Customer Price is always computed from the pre-pass-through basis, so a passed Growth Margin never cascades to the Customer:

• Final Customer Price (Cost Price path) = Cost Price × (1 + Distributor Markup %) × (1 + Seller Markup %) × (1 − Promotion %)= $80.00 × 1.05 × 1.15 × 0.9 = $86.94 — identical whether pass-through is enabled or disabled
• Final Customer Price (Retail Price path) = Retail Price × (1 + Seller Discount %) × (1 − Promotion %) = $100.00 × 0.95 × 0.9 = $85.50 — also identical regardless of pass-through
• Seller's margin (Cost Price path) if pass-through is enabled = Final Customer Price − Seller's effective cost = $29.34 (33.7%)
• Seller's margin (Cost Price path) if pass-through is disabled = Final Customer Price − Seller's effective cost = $11.34 (13.0%)
• Seller's margin (Retail Price path) if pass-through is enabled = Final Customer Price − Seller's effective cost = $22.50 (26.3%)
• Seller's margin (Retail Price path) if pass-through is disabled = Final Customer Price − Seller's effective cost = $4.50 (5.3%)

Summary — pass-through enabled (as configured in this example)

The Total Chain Margin (Final Customer Price minus the Distributor's True Cost) is $32.94 (37.9%) on the Cost Price path and $31.50 (36.8%) on the Retail Price path — and stays exactly there regardless of the pass-through setting. Pass-through only decides whose margin the Growth Margin benefit ends up in — the Distributor's or the Seller's — by changing what the Distributor charges the Seller; it never changes the total, and it never reaches the Customer.

If pass-through is disabled instead

Disabling pass-through keeps the full $20.00 Growth Margin benefit with the Distributor, on both paths. Everything else — Customer Price and Total Chain Margin — stays the same:

What partners actually see on the platform

The calculations above aren't just theoretical — they're exactly what shows up on the platform's own order screen. Here's that same mechanics, seen live (using a separate, real order — its own Growth Margin rate and inputs differ from the generic $100 example above, but the same principles apply):

Figure 6: A live order for Microsoft 365 Copilot (300 seats, 1-Year, pass-through enabled) — "You Buy For" reflects Base + Growth + Promotion combined; "You Sell For" reflects only Base Margin, the Seller's markup, and Promotion.

Worked example from a live order: Microsoft 365 Copilot, 300 seats, 1-Year term, with pass-through enabled for this Seller.

• Vendor Retail Price (visible in the Price table): €8,190.00 for 300 seats = €27.30 per seat — this is the ERP
• Base Margin: 20%
• Growth Margin: 25%
• Promotion: 15%
• Seller's markup: 10%

You Buy For (Seller's cost) reflects Base + Growth + Promotion combined, because pass-through is enabled here:

€27.30 × (1−20%−25%) × (1−15%) × 300 = €3,828.83 (down from €6,552.00 at Base Margin only)

You Sell For (price to the Customer) reflects only Base Margin, the Seller's own markup, and Promotion — Growth Margin never enters this number, whether pass-through is enabled or not:

€27.30 × (1−20%) × (1+10%) × (1−15%) × 300 = €6,126.12 (down from €7,207.20)

This is the live version of the rule from Step 4: the Seller's 10% markup still sets what they charge the Customer — it's calculated the same way regardless of pass-through. What pass-through changes is only the Seller's actual cost, not that calculation.

Growth Margin pass-through to Sellers

Microsoft grants Growth Margin at the Distributor level. Whether it is retained or passed on to a specific Seller is entirely the Distributor's commercial decision, set up in three steps:

1. Confirm the commercial policy: agree, per Seller, whether Growth Margin should be passed through in full.
2. Submit a request to AppXite Support: the AppXite team configures Growth Margin pass-through for that specific Seller.
3. Validate the result: confirm that Growth Margin is being applied for that Seller as expected.

At present, pass-through is all-or-nothing and single-configuration: one setting per Distributor–Seller relationship, either fully enabled or fully disabled — there is no partial percentage.

Growth Margin on Invoices

• Microsoft → Distributor / Direct Bill invoice: UnitPrice is the price after Base Margin only; EffectiveUnitPrice is the final charged price after Base Margin, Growth Margin, and any Promotion — this is what the Platform uses to calculate the invoice Total Amount.
• Distributor → Seller (Platform invoice): where pass-through is configured, the Seller's cost price is derived from the Growth-Margin-adjusted, reduced cost and flows onto the platform invoice automatically.
• Seller → Customer: unchanged. Growth Margin is Partner economics, not a Customer discount — it never affects the Customer-facing cost or retail price path. Any discount the Customer sees comes from a Promotion, which stays Customer-facing.

What changes at seat increases, renewals, and cancellations

How Growth Margin behaves across the life of a subscription:

Summary

Growth Margin is a new margin, taking effect October 1, 2026 on select enterprise SKUs, that Partners earn in addition to Base Margin when they drive qualifying customer growth (Base Margin + Growth Margin = Total Margin). It is earned through exactly one of three scenarios — New-to-Offer, Seat Expansion, or Strategic SKU Mix — each evaluated at the Customer's Tenant level and locked in at the time of sale; rates never stack across scenarios.

Mechanically, it is calculated additively with Base Margin, then Promotion is applied on top: Partner price = ERP × (1 − Base − Growth) × (1 − Promotion). Growth Margin is generated at the Distributor level and, by default, stays there — it never reaches the Seller automatically, and it never reaches the Customer at all. A Distributor can optionally pass the full Growth Margin benefit to a Seller through a dedicated pass-through setting — this is all-or-nothing, with no partial option — which reduces the Seller's cost and raises the Seller's margin by exactly the amount passed. The Customer price and the Total Chain Margin never change, regardless of the pass-through setting. The same mechanics apply to both the Cost Price and Retail Price paths; only the customer-facing pricing formula differs between them.

It changes Partner economics only; Customer pricing and experience are unaffected. Partners should validate eligibility and structure deals (particularly mid-term Seat Expansions, which require a new Subscription) before transacting, since adjustments cannot be made afterward.

For additional assistance, contact support at support@appxite.com

Related Content

• Growth margins — Partner Center | Microsoft Learn