Budgeting for SAP S/4HANA License Transition Without Surprises

Budgeting for SAP S/4HANA License Transition Without Surprises

Migrating to SAP S/4HANA is not just a technical upgrade – it’s a license transition that requires careful budgeting and planning.

CIOs and CTOs must plan for new S/4HANA licenses, potential SAP HANA database costs, and changes in support fees to avoid surprise expenses during the migration.

Proactive planning, understanding SAP’s licensing models, and negotiating conversion credits can turn this mandatory migration into an opportunity to optimize costs rather than a budgetary shock.

Not Just a Technical Upgrade – Budget for New Licenses

Many executives assume that moving from SAP ECC to S/4HANA is a straightforward upgrade, covered by existing investments. In reality, S/4HANA is a new product line that requires new licenses. SAP does not automatically “carry over” your ECC licenses.

Without a negotiated conversion deal, an organization would effectively repurchase S/4HANA licenses from scratch. This can lead to sticker shock if not budgeted for in advance.

SAP’s announced end-of-support date (currently 2027) for ECC is forcing a timeline – waiting is costly. Extended maintenance after 2027 incurs premium fees (e.g., an extra 2% or more on annual maintenance), which can strain IT budgets. ‘

Conversely, moving early can unlock incentives: SAP often offers migration credits or discounts to early adopters.

Budgeting for S/4HANA should begin 12–18 months before the go-live date, ensuring that funds are allocated for license costs and any support requirements during the transition period.

Read Mapping Legacy SAP ERP Licenses to S/4HANA User Roles.

Comparing License Models: Perpetual vs. Subscription

S/4HANA licensing comes in two primary models:

• On-Premise (Perpetual Licenses): A large one-time license purchase, plus ongoing annual support (typically ~20–22% of the license value). You own the software indefinitely. For example, a company with ~500 users might invest around $1 million upfront in S/4HANA license fees, then pay roughly $200k per year in support (maintenance). While ownership can be cheaper over a long horizon, it also means bearing the costs of infrastructure and upgrades. You’ll also need to budget for SAP HANA database licenses, as S/4 requires HANA (more on that below).
• RISE with SAP (Subscription Cloud): A bundled subscription that includes S/4HANA software, hosting infrastructure (cloud), and SAP support services in one annual fee. This OpEx model spreads costs over a 3-5 year contract. It offers simplicity and transfers the infrastructure burden to SAP or a hyperscaler. However, beware of the long-term TCO: SAP often touts RISE as cost-effective, but by year 4 or 5, the subscription fees can exceed on-premise costs if your usage stabilizes. RISE contracts also usually lock you in for the term and often include annual price escalators (e.g. 5% per year), which should be negotiated or capped to protect your budget.

User Licensing Changes:

On-prem S/4HANA still uses the familiar named-user licenses (e.g., Professional, Functional, Self-Service users), whereas the RISE cloud model often uses Full User Equivalents (FUE).

FUE is a pooled metric where different user roles consume a fraction of an equivalent unit of resource. For instance, one heavy “Advanced” user might be considered 1.0 FUE, while a casual user might be 0.1 FUE.

This approach can simplify licensing on paper (fewer license types), but it requires careful sizing. Over-estimate your FUEs and you overpay; under-estimate and you risk compliance issues.

When budgeting, account for the possibility that user counts or roles may change, and confirm whether you can adjust FUE quantities at renewal if needed (many contracts don’t allow mid-term reductions).

Read Retiring Old SAP Components During S/4HANA Migration.

Hidden Cost Factors in S/4HANA Migrations

Budget planning for S/4HANA must go beyond the basic license list price.

Several hidden or overlooked cost factors can ambush your project if you’re not prepared:

• SAP HANA Database Licensing: Unlike ECC, which can run on third-party databases (such as Oracle or SQL Server), S/4HANA requires SAP’s HANA database. If you deploy on-premises, you must license HANA separately. SAP offers a HANA Runtime license (restricted use, only for SAP apps), which costs roughly 15% of the value of the SAP applications running on it. For example, a business with $10 million worth of SAP software might pay approximately $1.5 million for a HANA runtime license. The alternative is a Full Use HANA license, priced by memory or cores, which is more expensive but allows broader use of the database (e.g., if you plan to build custom apps on HANA). Budget impact: If this database cost isn’t planned, it can double the database expense of your project. In a RISE subscription, the HANA license is bundled into the subscription fee (you won’t pay a separate DB license), but you should still understand its portion of the cost.
• Indirect Access & Digital Access: The indirect use of SAP (when non-SAP systems or external users interact with SAP data) has long been a source of unexpected fees. In ECC days, SAP often required any indirect user to have a named-user license, leading to huge compliance fines (e.g., if hundreds of e-commerce customers or partners accessed SAP through a portal). To mitigate this, SAP introduced Digital Access Document licensing for S/4HANA: instead of licensing each user, you license specific document types (such as sales orders and invoices) in blocks. This can be more predictable, but only if you opt in. Companies that ignore indirect access in their S/4 budget may face an audit later where SAP tallies up documents created by interfaces and presents an unexpected bill. Budget impact: Allocate funds for a digital access license or ensure your named-user licenses cover indirect use. It’s wise to audit all integrations and decide on a licensing approach (user vs. document) during migration, and negotiate a specified digital document volume or discounts to avoid open-ended liability.
• Support and Maintenance Changes: When you convert to S/4HANA licenses, your annual support fees will recalibrate. For on-premise S/4, support is calculated as a percentage of your new license net value. If you negotiated a big discount on S/4 licenses, your support base is lower (good for budget). However, if you end up with a higher net license value (for example, by purchasing additional modules), the 22% yearly support fee can increase your absolute costs. Also, once you drop your ECC licenses (in a contract conversion), you can’t put them on cheap third-party support and later resume SAP support – those old licenses are essentially retired. Budget planners should also account for overlapping maintenance if there’s a period where ECC and S/4 systems run in parallel. In cloud models, support is typically included in the subscription; however, be aware of escalator clauses and plan for potential inflationary increases each year.
• Extra Modules and Engines: S/4HANA comes with a rich core, but certain advanced capabilities (extended warehouse management, advanced planning, industry solutions, etc.) may require separate licensing or add-ons. During migration, business teams may seize the opportunity to adopt new functionality, only to realize later that the base S/4 license does not cover certain features. Conduct a thorough mapping of which ECC modules map to S/4HANA packages, and which new modules might be needed (and their cost). For example, basic warehouse management might be included, but advanced warehousing could be an additional engine priced by metrics such as the number of warehouse transactions. Such additions can quickly drive up costs if not included in the initial budget.
• Cloud Infrastructure and Storage Costs: If you choose a RISE or other cloud deployment, the subscription will bundle infrastructure, but verify the limits. Exceeding cloud usage baselines (such as extra storage, additional sandbox systems, or high availability add-ons) can incur surcharge fees. In an on-prem scenario, don’t forget to budget for hardware upgrades or cloud hosting for HANA – in-memory databases may require more powerful servers. Often, infrastructure costs during migration (like dual landscapes for ECC and S/4, extensive testing environments, etc.) are underestimated.

To summarize some of these potential cost “surprises” and how to mitigate them, the table below highlights key items:

Leveraging Existing Investments and Conversion Credits

One way to control S/4HANA migration costs is to maximize the value of your existing ECC licenses. SAP offers conversion programs to help customers transition:

• Contract Conversion: The most common approach today. This is essentially a “license exchange & credit” system. You negotiate an entirely new S/4HANA license contract, and in doing so, you retire your old ECC contract. SAP will assess the licenses you own and typically give you a credit toward the S/4HANA purchase based on the current net value of those licenses. For example, if you have $5M worth of ECC licenses on your books, SAP might give a credit worth a portion of that (say 50%) to offset the S/4 license costs. The exact credit is negotiable and depends on how much of your old footprint is relevant to S/4HANA. Unused licenses (“shelfware”) get little or no credit, so it’s in your interest to identify and eliminate shelfware before negotiations. Tip: Perform an internal license audit – if 15% of your named users haven’t logged in all year, consider terminating those if your contract allows, or at least exclude them from conversion.
• Product Conversion: An older, now largely phased-out program that allowed a direct swap of specific ECC licenses for equivalent S/4 licenses (one-for-one exchange of certain titles). Few customers use this now, as SAP prefers the contract conversion method for flexibility. If you didn’t take advantage of product conversion when it was available, you’ll almost certainly be doing a contract conversion.

Suppose you move to RISE with SAP (subscription). In that case, you are effectively doing a contract conversion as well: you’ll give up your perpetual licenses (and stop paying maintenance on them) in exchange for the subscription service.

Be careful: once you go to a subscription, your old licenses are gone – you can’t fall back on them. Make sure to negotiate value for that give-up.

For instance, ask for credits or discounts on the RISE subscription fees to account for your past investment. Otherwise, you’re paying full freight again for software you previously bought.

Negotiation leverage:

SAP’s sales teams are motivated to migrate customers to S/4HANA sooner rather than later (especially before the ECC 2027 deadline). Use this to your advantage.

Don’t accept the first offer. It’s not uncommon to achieve 40–80% credit on license value for a well-planned conversion, but only if you push.

Aim to get all incentives documented in the contract: if the SAP account rep promises “extended support at no charge” or “X% discount if you sign by Q4,” get it in writing. This ensures that your budget assumptions remain accurate.

Planning and Controlling the Budget During Migration

To avoid budget overruns, treat license transition planning as a workstream in your S/4HANA project, equal to the technical migration.

Key strategies for CIOs and CTOs:

• Conduct a Baseline License Audit: Before signing any S/4 contract, know exactly what you have and use in ECC. Identify unused or underutilized licenses and determine if they can be terminated or removed from the support count. This streamlines your support costs and strengthens your position – SAP will see that you’re only converting what’s truly needed.
• Right-Size and Phased Migrations: You don’t have to convert everything at once. Some enterprises migrate a division or region to S/4 first. In such cases, you might keep some ECC licenses running (and under maintenance) while new S/4 licenses cover the migrated part. Budget for this overlap if doing a phased rollout. The benefit is that you can test license usage in a pilot before fully scaling, potentially revealing that you need fewer licenses or a different mix. Incorporate contingency in the budget for adjustments after an initial go-live.
• Total Cost of Ownership (TCO) Analysis: Build a multi-year cost projection comparing scenarios (e.g., “S/4 on-prem vs S/4 via RISE vs Status Quo ECC”). Include all components: software licenses, support, infrastructure, cloud costs, implementation services, as well as productivity gains or losses. This exercise often highlights that while Year 1 costs of S/4 are high, Year 5+ might break even or save money, or vice versa, depending on the model. Use these insights to set a realistic budget and to negotiate. For example, if your TCO analysis shows that RISE will cost $ 500,000 more than on-prem over 5 years, present that to SAP and see if they can improve the subscription pricing or include extras to justify the premium.
• Budget for Training and Change Management: A frequently underestimated cost is the human side of the migration. New licensing metrics and usage policies mean you must educate your IT and procurement teams. Budget some amount for license management tools, training staff on the new contract terms (e.g., what constitutes indirect usage under the new model), and possibly external advisory services. These costs, while not fees paid to SAP, can prevent very costly mistakes or compliance issues later.
• Monitor and Adjust: Once the migration project starts, establish checkpoints to review actual vs. budgeted licensing costs. If custom development or new integrations are introduced, reevaluate whether they trigger license requirements. Post-migration, continue monitoring usage so that you can true-up or optimize before SAP audits do it for you. Maintaining an active license management practice will ensure that your ongoing costs stay aligned with your budget and that no unexpected surprises emerge a year after go-live.

Recommendations

Practical steps for CIOs/CTOs to ensure a smooth and cost-effective S/4HANA license transition:

• Start Early and Engage Stakeholders: Initiate license planning 12–18 months before migration. Involve IT, procurement, and finance teams to align on budget expectations.
• Audit & Optimize Current Usage: Conduct an internal audit of ECC licenses. Remove or redeploy unused users and terminate redundant products before negotiating with SAP.
• Leverage SAP’s Timeline: Use the looming 2027 support deadline as a point of leverage. Push SAP for conversion incentives – e.g., credits for existing licenses, discount bundles, or extended ECC support at locked rates – and get these commitments in the contract.
• Compare Options Side-by-Side: Perform a 5-year TCO comparison for on-prem vs. RISE vs. other options. Include all costs (hardware, cloud fees, maintenance, staffing). Let data drive your decision and negotiation – if one option is pricier by year 5, ask SAP to bridge that gap or explain the value.
• Negotiate Flexible Terms: Don’t just focus on price – negotiate the contract terms to your advantage. Seek provisions like the ability to adjust user counts at renewal, caps on annual price increases, and clear exit clauses after the term. Flexibility will save money if your situation changes.
• Plan for Indirect Access: If you haven’t already, take advantage of SAP’s digital access model. Negotiate some included volume of documents or a discounted rate for excess usage. Ensure your new contract explicitly covers the licensing of APIs and third-party systems to avoid future unexpected bills.
• Include HANA in Budget Talks: If you’re going on-premises, decide on HANA runtime vs. full use early and include that cost in the negotiation. If you choose RISE, confirm that the HANA database costs are included to avoid double charging.
• Consider Expert Help: Engage an independent SAP licensing advisor or licensing specialist if needed. Their insights on SAP’s pricing tactics and knowledge of peer benchmarks can pay for themselves by identifying cost avoidance and negotiating better terms.
• Communicate with Leadership: Keep the C-suite and finance leadership informed about the license transition plan. Outline best-case and worst-case budget scenarios. This ensures there’s organizational support for tough negotiations and no last-minute shocks to the CFO.
• Document Everything: When you do reach a deal, ensure every promise is in writing. If SAP verbally offers a 50% credit or a free year of cloud platform, it must be in the contract, or it doesn’t exist. This protects your budget assumptions and holds SAP accountable.

FAQ

Q1: Do we need to pay for S/4HANA licenses if we have already invested millions in ECC?
A: Yes – S/4HANA is considered a new product line by SAP. Your ECC license investment doesn’t automatically cover the new system. You will need to purchase S/4HANA licenses, either outright or via a conversion program. However, you shouldn’t have to pay full price for everything again. You can negotiate credits for your existing licenses to offset the cost. Think of it as trading in your old licenses for value toward the new ones. Proper negotiation can significantly reduce the net new spend, but it won’t be zero.

Q2: How can we minimize the cost of S/4HANA licenses during the migration?
A: Start by leveraging SAP’s conversion offerings. In a contract conversion, list out all the SAP licenses you own and work with SAP to get credit for them against the S/4 licenses you need. Maximize this credit by dropping any unused licenses beforehand (why pay to convert something you don’t use?). Also, time your deal strategically – SAP often has quarter-end or year-end deals, during which they may offer extra discounts if you sign by a specific deadline. Another tactic is to right-size user types: ensure you’re not buying all Professional user licenses if 40% of your users only need limited access – this alone can save a lot. Finally, obtain competitive quotes from implementation partners or seek benchmarking data; if SAP knows you’re informed about market rates, they may be more flexible with pricing.

Q3: Our current SAP system runs on Oracle/SQL – will we need to license SAP HANA separately, and what is the cost?
A: If you are deploying S/4HANA in your own data center (or in a cloud like AWS/Azure without SAP’s RISE bundle), you must license SAP HANA because S/4 only runs on HANA. SAP offers a HANA runtime license for use only with SAP applications (cheaper, based on a percentage of your application value) and a full-use HANA license (more expensive, measured by memory or cores, allowing non-SAP use). For budgeting purposes, the runtime license is approximately 15% of the value of the apps – for example, if your S/4 software is worth $5 million, the runtime HANA might be around $ 750,000. In a RISE with SAP scenario, the HANA database is included in your subscription, so you don’t pay a separate DB license – but you’re effectively renting it as part of the package. It’s essential to consider HANA licensing when comparing on-premises vs. RISE. Also, remember to budget for HANA hardware or cloud resources if not on RISE; HANA can require robust (costly) infrastructure.

Q4: Is “RISE with SAP” more cost-effective than on-premise S/4HANA, or will it end up more expensive?
A: It depends on your time horizon and usage. Short-term, RISE can appear cost-effective because there’s no big upfront license fee – you pay as you go, and it includes infrastructure and support. SAP often pitches RISE as having a lower TCO (~20% lower over a few years) by bundling services. However, over a longer period (5+ years), the subscription costs can overtake on-premise costs. On-prem, after the initial purchase, your main recurring cost is annual support (and infrastructure, which you can optimize over time). With RISE, you’re committing to continuous payments that may rise each year. If your company expects relatively stable ERP usage and can manage infrastructure efficiently, owning licenses might be cheaper in the long run. On the other hand, if you value the cloud benefits (SAP managing updates, elastic scaling, included hardware refreshes), you might justify a higher cost. Key point: Do the math for your scenario. Also, negotiate the RISE terms – for instance, ask for price protections after the initial term, so you don’t get a steep increase in year 4 or 5. Many enterprises choose RISE for strategic reasons (such as cloud-first mandates), but they still encourage SAP to make the pricing comparable over the full term.

Q5: What are the common “gotchas” in S/4HANA licensing that could cause budget surprises?
A: Some major gotchas to watch out for: (1) Lock-in and inflexibility: Once you sign an S/4 contract (especially cloud), you might be stuck with the licenses and numbers you bought for the term – if your user count drops, you generally can’t scale down payments until renewal. Always check if there’s any flexibility or at least plan for the worst case (paying for unused capacity). (2) Annual escalators: As mentioned, many cloud deals have built-in yearly price increases. A 5% annual increase means by year 5, you’re paying over 20% more than you did in year 1 for the same thing. Negotiate those down or capped. (3) Indirect access terms: Even with digital access licensing, it is essential to be crystal clear on how aspects such as e-commerce orders, IoT devices, or third-party apps interfacing with S/4 are licensed. If it’s not clarified, assume SAP will charge you somehow – it’s better to include it upfront than to face an audit later. (4) Future functionality: SAP is continually updating S/4HANA. Sometimes they change what’s included in the base license versus an add-on. Ensure your contract includes clauses that protect you if SAP reclassifies something or releases a new module you need – you don’t want an unbudgeted purchase in two years because a feature has been moved out of your package. Having a roadmap dialogue with SAP is helpful: discuss your planned use of S/4 and get assurances (in writing) on what licenses will cover those needs. In summary, careful contract review and what-if scenario planning are your best defense against these gotchas. Don’t hesitate to involve legal or licensing experts to comb through terms before you sign.

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