A clear signal from Microsoft
Microsoft has confirmed a big change to its CSP incentive program for FY27, which runs from July 1, 2026 to June 30, 2027. The message is clear: Microsoft is moving its investment away from flat, run-rate volume and toward growth and premium products.
We know changes of this scale can feel unsettling, and for many partners the instinct will be to focus on what’s being taken away. Our aim with this update is to give you the facts clearly, and to show you why, with the right approach, this is a real opportunity to grow the value of your base.
If you’re interested in learning more about these updates and what they mean for your business, we encourage you to get in touch with the Sherweb team.
What’s changing with the FY27 CSP incentives?
The core change is a shift in where incentive is earned. Rewards are now weighted toward higher-tier, security-rich and AI-enabled products, and toward the partners who grow. Across the core programs, the earning opportunity is up to 19.5% on Modern Work and Dynamics 365, and up to 15% on Azure.
- The flat run-rate rebate on Modern Work (Microsoft 365) and Dynamics 365 is being retired. The Core rebate for Modern Work was 3.75% last year and applied to almost everything under the umbrella of Microsoft 365. That rebate is removed completely.
- Incentives now flow through Strategic Product Accelerators (premium products) and a Growth Accelerator that rewards year-on-year growth.
- Low run-rate SKUs, particularly on Modern Work, no longer earn incentive.
- Azure is structurally unchanged, and continues to reward consumption and growth.
| Program | Where incentive is earned | Up to |
|---|---|---|
| Microsoft 365 (Modern Work) | Premium SKUs + year-on-year growth | 19.5% |
| Dynamics 365 | Premium SKUs + year-on-year growth | 19.5% |
| Azure | Consumption + growth accelerators | 15% |
A new way to earn on Copilot Cowork
Microsoft has also introduced a CSP Activation Incentive for Copilot Cowork, running from September 1, 2026 to June 30, 2027. It rewards partners who help CSP customers activate Cowork and build sustained usage, rather than rewarding the initial sale alone.
The basics:
- $50 per qualified incremental monthly active user, capped at $12,500 per customer tenant
- Only pays out if the customer grows to at least 50 Cowork monthly active users and at least $2,500 in monthly Cowork consumption, and is still above both in month three
- Stacks on top of existing CSP consumption earnings
Customers are eligible if they were below 50 Cowork monthly active users and below $2,500 in monthly Cowork consumption revenue at the August 2026 baseline. The activation window then opens in the first month they hit both thresholds and runs for three months, with qualification judged on month three.
You also need to be the Transacting Partner of Record for both the Copilot licences and the Cowork consumption, in month one and month three.
Full details and requirements are in the Microsoft Commercial Partner Incentives Guide.
Margin change on legacy products
As of October 2026, Microsoft has reduced partner margin by 5% on a number of legacy and standalone products. This change reinforces the same direction as the rest of FY27: the value in the older, standalone base is reducing, and the opportunity is in moving customers up. The affected products are:
- Office 365 E1
- Office 365 E3
- OneDrive Extra Storage (SharePoint)
- SharePoint
- Exchange Online
- Microsoft 365 Apps for Business
- Microsoft 365 Apps for Enterprise
What it means for you and your customers
This is where the opportunity lies. Every seat in your customer base is now a candidate to move up, and moving up is exactly what earns under the new model.
- Make Business Premium your baseline. Position it as the minimum security standard for every SMB customer. It protects the end customer and unlocks premium incentive at the same time.
- Build a Frontier mindset with Copilot. Lead with Copilot bundles on top of Business Premium in SMB to open the AI conversation early.
- Think E5 and E7 for larger customers. In the era of Copilot, mid-market and enterprise customers are the E5, E7 and Copilot opportunity — the top of the incentive structure.
- Lean into growth. The Growth Accelerator rewards net-new and upsell, so a proactive plan to review and grow your base directly grows your incentive.
Co-op funding rules have shifted in FY27
There have been significant changes to the co-op programs for FY27, and it’s worth reviewing the new rules carefully before you incur any expenses, because they may not be eligible under FY27.
How much this affects you depends on the size of your co-op balance and your current claiming strategy, but the overall direction is toward more restrictions on what qualifies.
Three areas to look at first:
- Headcount. Mandatory training is now required for allocated resources.
- Events. Expense rules have tightened, particularly around entertainment-related costs and event sponsorships.
- Incentive-led activities. Approaches that used to be easy to claim are now more restricted.
What we’d recommend: Check Partner Center now to confirm how much co-op you actually have available, then set your claiming strategy and test it against the FY27 rules before you commit to any spend. Review the FY27 Co-op Policy Guide for the full picture on what’s changed.
Microsoft reinforces its AI-first partner strategy
Microsoft held MCAPS Start for Partners on July 22, its FY27 kickoff for the partner ecosystem. At the event, Microsoft reaffirmed that FY27 investments, partner motions and growth initiatives will increasingly focus on helping customers evolve from AI experimentation to AI-powered business transformation.
The company also introduced the concept of “Frontier Transformation” as the next phase of AI adoption, where organizations embed Copilot, agents, governance and automation into everyday business operations.
“This is an unprecedented paradigm shift in the nature of the incentives program, taking strong steps to ensure partners are focusing on the pillars that will drive the Frontier program.”
– Alexandre Laflamme, Partner Programs & Incentives Manager, Sherweb
For partners, this reinforces the direction already reflected in the FY27 CSP incentives: organizations that drive AI adoption, customer usage and business outcomes are best positioned to align with Microsoft’s long-term priorities.
What this means for your business
Microsoft’s message is becoming clearer:
- AI growth remains at the center of Microsoft’s partner strategy.
- Copilot adoption is no longer enough on its own. Customers will need guidance on deployment, governance, security and change management, and that’s where your services revenue sits.
- Agents and AI-powered business processes represent the next growth opportunity beyond basic Copilot licensing. Helping customers build and run agentic workflows is billable work, and it’s where Microsoft is putting its investment.
- Partners that can help SMB customers operationalize AI are likely to be best aligned with Microsoft’s future investments and growth motions.
For partners, the signal is clear: success in FY27 will increasingly come from helping customers generate measurable business outcomes with AI rather than simply selling licenses.
How Sherweb can help you make the most of it
Change like this is easier with a partner beside you. Our Microsoft experts have put together a free guide covering what’s changed in FY27, with side-by-side FY26 and FY27 rate comparisons, guidance by partner profile and a six-step readiness checklist to help you work out where to start.
Get the Microsoft FY27 growth guide for MSPs.
As your distributor, we bring the support, expertise and enablement to help you reshape your offers and build the pipeline that earns in the year ahead. If you would like a one-to-one session, get in touch with the Sherweb team. We’re in this with you.
