How to Negotiate SAP S/4HANA Licensing: Conversions, Discounts, and Migration Credits

How to Negotiate SAP S/4HANA Licensing

Executive Summary:

Negotiating SAP S/4HANA licensing is a high-stakes endeavor for enterprises migrating from ECC.

The move to S/4HANA isn’t just a technical upgrade – it’s a license conversion that can either drain budgets or unlock savings.

This article provides a comprehensive overview of negotiating SAP S/4HANA licensing, covering on-premise migrations, license conversions, securing discounts, and maximizing migration credits.

With the 2027 ECC support deadline approaching, organizations must adopt a strategic, buyer-protective approach to avoid overspending and ensure they only pay for what they truly need.

Below, we break down the key considerations, negotiation tactics, examples, and pitfalls to help you navigate S/4HANA licensing like a pro.

S/4HANA Migration: A Licensing Challenge and Opportunity

Migrating to S/4HANA on-premise presents both a challenge and an opportunity for sourcing and IT leaders.

On one hand, SAP requires new S/4HANA licenses – meaning you can’t simply reuse your old ECC licenses. This can be daunting: enterprises often face multi-million dollar price tags if they don’t negotiate wisely.

On the other hand, the migration is a once-in-a-generation chance to renegotiate your SAP agreement.

SAP’s push to move its customer base onto S/4HANA (with ECC support ending in 2027) gives buyers leverage to obtain favorable terms if they plan carefully.

Smart enterprises treat S/4HANA licensing as a strategic sourcing project, analyzing current usage and future needs to turn the migration into an opportunity to optimize costs and update contract terms.

The key is to start planning early, involve all stakeholders (IT, procurement, finance), and approach SAP with a clear game plan that turns SAP’s urgency to your advantage.

In short, S/4HANA licensing can be costly, but with a proactive strategy, it can also be cost-effective.

Know Your Licensing Path: Conversion Programs vs. New Contract

Before negotiating, it’s crucial to understand the licensing paths for S/4HANA.

SAP has offered two main programs for customers moving from ECC on-premise to S/4HANA on-premise:

• Product Conversion: A now-legacy program (largely phased out) that let customers swap specific old ECC licenses for equivalent S/4HANA product licenses. This one-for-one exchange had strict rules: you had to convert like-for-like, you couldn’t reduce license quantities (no downsizing), and your annual maintenance cost stayed the same. Example: If you had 500 Professional User licenses in ECC, product conversion would allow you to exchange them for 500 S/4HANA user licenses of the corresponding type. While simple, this approach carried over any unused licenses (shelfware) into the new environment, offering no cost relief for over-licensing. Product conversion is no longer broadly offered, but understanding it helps illustrate the limitations of a straight swap.
• Contract Conversion: The primary route today for on-premise migration. In a contract conversion, you essentially terminate your old ECC contract and negotiate a new S/4HANA license contract. SAP will provide migration credits for the licenses you already own, applying the value of your existing investment toward the new S/4HANA licenses. This is often referred to as a license exchange program or license migration credit. Example: If you originally spent $5 million on ECC licenses, SAP might give a credit (say, 50–80% of that value) toward your purchase of S/4HANA licenses. Unlike product conversion, contract conversion is a “blank slate” – you can reshape your licensing: drop modules you no longer need, add new ones, and optimize your user license mix under S/4HANA’s model. It’s more flexible and buyer-friendly if negotiated well, but it’s also a complex endeavor requiring careful mapping of old licenses to new ones.

Another option is RISE with SAP (S/4HANA as a cloud subscription), which essentially involves converting a contract to a subscription model.

In a RISE deal, you discontinue your on-premise licenses and switch to a SaaS contract.

While RISE simplifies the tech infrastructure, it changes the commercial model (from upfront licenses + annual maintenance to an all-in subscription fee).

Be cautious: if considering RISE, conduct a long-term cost analysis – sometimes the 3-5 year subscription cost can exceed on-premise costs when viewed over a longer horizon.

Also, remember that moving to RISE means trading in your perpetual licenses (you lose ownership of them), so ensure SAP gives adequate credit or incentives for those in the new subscription.

The focus of this article is on on-premise S/4HANA conversions. Still, savvy negotiators will evaluate both on-premise and RISE options to see which yields better value, and use one as leverage against the other.

Maximizing Migration Credits and License Value

One of your first goals in negotiating S/4HANA licensing is to maximize the credit for your existing SAP investments.

SAP will not automatically give full value, so you must advocate for it.

Here’s how to get the most value from what you’ve already paid for:

• Audit Your ECC Usage: Before discussing numbers with SAP, conduct an internal audit of your current SAP usage to ensure accuracy. Identify “shelfware” – licenses and modules you own but aren’t actually using. For example, perhaps you bought HR or CRM add-ons for ECC that are now idle, or you have 1,000 Professional User licenses on paper but only 700 active users. This analysis is crucial. Why? SAP’s credit calculation will consider the licenses in your contract, not just what you use. If you have unused licenses still on your contract, SAP tends to give little or no credit for them (since they’re not “needed” for S/4HANA). Actionable take-away: try to remove or terminate unused licenses before negotiating the S/4 deal, or at least exclude them from the conversion. In some cases, SAP may allow you to drop certain shelfware as part of a broader S/4HANA negotiation (especially if you are buying new products) – but you must ask and push for it. Every license you can retire now is a future maintenance cost saved and a lever to avoid paying for its S/4 equivalent.
• Map Old to New Thoughtfully: Not every ECC product maps cleanly to S/4HANA. Use the migration as a chance to right-size and modernize your license portfolio. For instance, ECC user categories might have included Professional, Limited Professional, Employee, etc., whereas S/4HANA on-premise might streamline to just Professional and Functional (as an example). If some users in ECC were over-provisioned (e.g., given Professional licenses when a less expensive category would do), correct that in the new license scheme. Similarly, if you have modules in ECC that S/4 splits into multiple components, ensure you understand which pieces you truly need. The conversion credit SAP offers can usually be applied across product lines in a contract conversion – a flexibility sometimes dubbed the “milkshake” approach (blending the value of any old licenses into new purchases). Take advantage of this opportunity: for example, you could drop an unused Supply Chain module and apply its value to invest in a new S/4HANA analytics module that your business needs. The more you align the new licenses with actual business requirements, the more value you squeeze from past spend.
• Negotiate the Credit Percentage: SAP often won’t volunteer the maximum credit – you have to negotiate it. If your organization has historically spent, say, $10 million on licenses, you should push to have as much of that recognized as possible in the new deal. It’s rare to get a 100% one-to-one credit (SAP will argue you derived value from the old software for years), but significant offsets are achievable. Enterprises have reported securing, for example, 50% or more of their original investment as credit toward S/4HANA. Come prepared with data: show SAP your usage and growth plans, and underscore that without strong credit, you’re effectively paying twice for the same capabilities. Suppose SAP knows you are considering delaying the migration or even exploring third-party support for ECC as an alternative. In that case, they’ll be more inclined to be generous with credits to get your commitment. The credit negotiation is one of the most important financial discussions in the conversion – treat it as such. Keep it separate from discussions on new functionality to avoid confusion. First, agree on how much past investment is acknowledged, then tackle the pricing of new items.
• Ensure Investment Protection: Insist that any credit or exchange value is documented in the contract. For example, if SAP agrees to give you a $5M credit for your legacy licenses, the contract should explicitly state how that credit was applied to the S/4HANA license list price. This prevents any “amnesia” later about verbal promises. Also, clarify how maintenance on the new licenses will be calculated. SAP’s standard maintenance is 22% of the net license fee, which works in your favor if you negotiate a big discount or credit (because 22% of a lower number is a lower annual cost). Ensure the maintenance base (the total on which 22% is calculated) is based on the net amount after all discounts/credits, and confirm that you’re not accidentally carrying over maintenance on old licenses that you intended to drop. In summary, document everything: migration credits, extended support deals, special discounts – whatever SAP offers as part of the conversion package should be written down to hold them accountable.

Driving Better Discounts and Incentives from SAP

Getting a sizable credit for your existing licenses is one side of the coin; the other is negotiating discounts on any new S/4HANA licenses or components you need to purchase.

SAP’s pricing and discounting can be highly customer-specific, meaning there’s room to negotiate if you have the leverage and information.

Here’s how to drive the best deal:

• Benchmark and Set Target Discounts: Research what discount levels similar enterprises are getting on S/4HANA. For big deals, double-digit discounts off SAP’s price list are common. If you don’t have access to formal benchmarks, at least internally decide on a target (e.g., “we want 70% off list for this large expansion”) and use it as a goal in talks. SAP’s sales team will often start with a standard discount, but those can be improved through hard negotiation and by bundling purchases. For example, if you are also purchasing SAP Ariba, SuccessFactors, or database licenses in conjunction with S/4HANA, consider negotiating a discount on the entire package. Vendors like SAP have flexibility on pricing, especially at quarter- or year-end when they want to close deals. Let them know you’re considering alternatives (or delaying) if the offer isn’t compelling – this is particularly potent given SAP’s push for S/4HANA adoption.
• Time Your Negotiation and Leverage SAP’s Quota: SAP reps are under pressure to drive S/4HANA adoption before the ECC deadline. This means there may be extra incentives in certain timeframes. For instance, SAP might have a program that, if you sign a conversion deal in 2024, they’ll extend your ECC support at no charge until your S/4 goes live, or they’ll include some cloud platform credits or training. These incentives are often time-bound (to make quarterly targets). Use this to your advantage: engage SAP when you know they are hungry for a win (e.g., Q4 push) and make it clear you expect something in return for being an early mover. If SAP offers special discounts or freebies, ensure they are documented in writing in the contract. A verbal “we’ll take care of you on that extra sandbox system” means nothing if it’s not documented. Every extra you negotiate (price reduction, extra licenses, extended maintenance, service credits) should be explicitly listed.
• Focus on TCO, Not Just License Price: A savvy enterprise negotiator looks at the total cost of ownership over the long term. This means considering not just the upfront license cost, but also maintenance, infrastructure (S/4HANA requires the HANA database, which might mean a separate license or higher hardware costs), and future growth. For example, if SAP is proposing a certain discount on S/4HANA but requiring you to also license the HANA database through them, examine whether the HANA database license is being charged fairly (SAP offers a HANA runtime license for use only with SAP applications, which is cheaper than a full standalone HANA license – ensure you get the appropriate option for your needs). Likewise, if you anticipate needing more users or modules in a couple of years, consider locking in pricing now. Negotiation tip: Request price protection for additional S/4HANA user licenses for the next 2-3 years, ensuring that if you expand or undertake phase 2 of the project, you will pay the same unit price. This prevents SAP from charging a premium later when you’re further committed to their platform.
• Don’t Forget Support and Training: Besides license fees, negotiate the surrounding elements. If you’re converting to S/4HANA, you may require SAP support during the migration, possibly at higher support levels or with additional services. See if SAP will include some migration support services or training credits as part of the deal. For example, request a certain number of SAP Learning Hub seats or training days for your team at no charge, or a voucher for SAP consulting hours to assist with the transition. SAP may also offer extended maintenance on ECC as an incentive (e.g., “we’ll keep supporting your ECC until 2030 at the standard fee if you sign for S/4HANA now”). These can be valuable – just ensure they align with your needs and are clearly outlined in the contract. Always remember: once you sign the deal, your leverage drops to zero, so secure all promises upfront.

Common S/4HANA Licensing Pitfalls (and How to Avoid Them)

Even well-prepared organizations can stumble if they overlook certain licensing “gotchas” in the heat of negotiation.

Here are some common pitfalls in S/4HANA licensing and strategies to avoid them:

In addition to the above, always plan for HANA database licensing in on-premise scenarios.

Since S/4HANA only runs on HANA, you’ll either need a HANA runtime license (which allows HANA use only for S/4HANA and related SAP apps) or a full HANA license (if you plan to use the database for custom applications or multi-purpose).

This can be a significant cost item. Pitfall to avoid: signing an S/4HANA deal and later realizing you also owe millions for database licenses.

Solution: Include HANA database licensing in your negotiations. If you need a full-use license, consider whether SAP can offer a bundled discount.

Alternatively, if the runtime is sufficient, ensure you obtain it at a reasonable cost. Additionally, clarify the support costs for HANA DB, as they will be included in ongoing maintenance.

Lastly, be wary of timeline pitfalls.

SAP might push for an aggressive migration timeline. Don’t over-commit to a deployment date that doesn’t suit you just to get a discount, unless you’re sure you can meet it.

Some incentive deals may be tied to your purchase by a certain date or going live by a specific time.

Negotiate terms that give you flexibility in project timing (for example, the ability to start paying for certain licenses only when you go live, not all upfront).

Always align the contract with your project reality to avoid paying for software that sits on the shelf because the project was delayed.

Cutting SAP ECC Maintenance Costs Before 2027: Strategies for Renewals and Third-Party Support

Recommendations (Expert Tips for S/4HANA License Negotiation)

1. Start early and plan proactively.

Treat S/4HANA licensing as a critical workstream separate from the technical migration. Begin planning 12–18 months in advance of your intended go-live date. Early movers have more leverage (and often access to better SAP incentive programs) than those who migrate at the last minute.

2. Do your homework on usage.

Conduct a thorough internal audit of your SAP users and modules to ensure optimal performance. Clean up unused accounts and unnecessary licenses in ECC. By entering negotiations with an accurate picture of what you use (and don’t use), you can avoid buying equivalent shelfware in S/4HANA. Optimize user license assignments (ensure people have the right license type for their role) to potentially reduce the count of expensive license types.

3. Leverage SAP’s urgency.

SAP is highly motivated to transition customers off ECC before 2027. Use this to your advantage. For example, remind SAP reps that you have options – you could stay on ECC a bit longer (or use third-party support), or evaluate other solutions, unless the S/4HANA deal makes compelling financial sense. This mindset encourages SAP to offer extended migration credits, deeper discounts, or additional benefits (such as extended support or training) to secure your business. Don’t be shy about letting SAP know that their timeline is not your timeline – you’ll move when the deal is right.

4. Benchmark and negotiate hard.

Approach the negotiation with a target in mind for discount levels and deal structure. If possible, research what peers or industry benchmarks suggest for S/4HANA license discounts and contract terms. Ask for more than you expect – it’s easier to come down to a middle-ground than to get concessions you never raised. Key areas to negotiate include license price discounts, maintenance rate (typically fixed at 22% but negotiable based on the base it’s applied to), price increase caps for future years, and flexibility to adjust license counts. Aim for price protections (caps on year-over-year cost increases), especially if you’re signing a multi-year or subscription deal.

5. Insist on contract clarity and documentation.

Any incentive, discount, credit, or special term that SAP offers must be captured in writing. Verbal assurances have no value once you’re locked in. Ensure that the final contract documents the exact credit value for old licenses, any conditions attached to it, and the details of any extended maintenance or cloud credits, among other relevant information. Also, ensure that the contract language regarding usage rights (such as indirect access rules, virtualization, and multiple use) is clear and meets your expectations. This is your chance to renegotiate the fine print – use it to avoid surprises later.

6. Consider phased migrations and tie payments to milestones.

You don’t necessarily have to convert everything all at once. Some enterprises negotiate phased conversions – e.g., moving core ERP licenses now and tackling other components (CRM, supply chain modules) later when those systems are ready. In such cases, see if SAP will allow you to align license purchases with deployment phases (to avoid paying for licenses too far in advance of usage). Also, negotiate to keep certain legacy licenses active (with maintenance) if they won’t move to S/4 for a while, so you’re not forced into a big bang. Structuring the deal to match your rollout can prevent waste.

7. Bring in expert help if needed.

If your organization lacks in-depth SAP licensing expertise, consider engaging an independent licensing advisor or consulting firm with experience in SAP negotiations. They can identify hidden costs, benchmark the deal, and advise on tactics (e.g., how to counter common SAP sales strategies). The cost of advice can easily pay for itself in a better negotiated outcome. Even Gartner or procurement advisory services can provide valuable guidance on current market norms.

8. Prepare a walk-away alternative.

In any negotiation, your power comes from having options. Determine what you will do if SAP’s offer isn’t acceptable – for example, run ECC until 2027 (or 2030 with extended support) and re-evaluate later, or move only part of your landscape, or use a third-party maintenance provider to buy time. If SAP knows you are willing to exercise a Plan B, they are more likely to improve their offer.

Just ensure your alternative is credible and internally approved, so SAP’s bluff-calling doesn’t catch you off guard.

Checklist: 5 Actions to Take for S/4HANA License Success

1. Inventory and Analyze Current Licenses: Gather all data on your existing SAP licenses and usage. Run SAP’s license audit tools (like LAW reports) to see actual usage versus entitlements. Identify unused licenses and note any special contract terms you currently have. This forms your baseline.
2. Define Future Requirements: Collaborate with technical teams and business units to map out which S/4HANA modules and the corresponding number of user types will be needed. Create a license bill of materials for the target S/4HANA environment. Don’t forget components like the HANA database or new features (e.g., embedded analytics) that might require licensing.
3. Engage SAP (RFP or Direct Discussion): Open a dialogue with SAP (and optionally, SIs or partners) about your migration. Solicit a formal proposal or quote for S/4HANA licensing. Indicate that you are looking at all options (on-premises vs. RISE vs. status quo) to encourage a competitive quote.
4. Negotiate in Rounds: Treat the first offer as a starting point. Counter with your requests – higher credits, larger discounts, and inclusion of specific terms (such as price caps, flexible licenses, training, etc.). In each round, document what has been agreed. Involve your legal team early to review new contract terms and flag issues (such as indemnities, usage rights, or anything that changed from your old contract).
5. Finalize and Future-Proof the Contract: Before signing, double-check that all agreed-upon points are in the paperwork. Verify the math: credits are applied correctly, the maintenance base is reset appropriately, and any future purchases or renewals have agreed-upon pricing. Ensure you have provisions for future flexibility (like adding users at a set discount, or the ability to swap certain licenses if needed). Once satisfied, obtain executive approval and sign – and keep a copy of this contract handy for periodic compliance checks and as a reference in case of any SAP audits.

Read SAP Ariba Negotiations: Managing Transaction Fees, Volume Tiers, and Network Costs.

FAQs

Q: We already paid for SAP ECC – do we have to pay all over again for S/4HANA?
A: Unfortunately, yes. S/4HANA is considered a new product line by SAP, so it requires new licenses. You’re not automatically entitled to S/4HANA just because you own ECC. However, SAP offers license conversion credits to recognize your past investment. In a well-negotiated deal, these credits can substantially reduce the cost of S/4HANA, so you’re not paying 100% from scratch. The key is to negotiate those credits; without a conversion agreement, moving to S/4HANA would mean purchasing licenses at list price anew.

Q: What’s the difference between a product conversion and a contract conversion for S/4HANA?
A: A product conversion was an older, narrowly scoped option to swap individual ECC licenses for S/4HANA equivalents (e.g., exchange one finance module for the S/4HANA finance component). It had many restrictions and is now mostly phased out. A contract conversion, in contrast, is a wholesale approach: you terminate or amend your entire ECC license contract and replace it with a new S/4HANA contract. In contract conversion, you negotiate a new set of licenses (potentially with a different structure) and receive credit for the licenses you relinquish. Contract conversion is a more flexible approach and is the standard way to migrate an on-premise ECC installation base to S/4HANA licensing today. It enables you to remove outdated components and add new ones, effectively restructuring your license portfolio for S/4HANA.

Q: How much credit or discount can we expect for our existing licenses when migrating?
A: It varies widely, and it’s fully negotiable. SAP doesn’t have a public formula; they assess the products you own, their current business value, and how directly they map to S/4HANA. If you have a lot of shelfware (unused licenses), expect low credit for those. If most of your licenses are actively used and required in S/4HANA, you can argue for high credit. As a ballpark, many enterprises manage to secure a significant portion of their original license value, sometimes to the tune of 40–70% credit; however, your mileage may vary. The important thing is not to accept SAP’s first offer blindly. Come with your valuation of your estate and push for more. Also, remember to negotiate the net-new license prices down, not just the credit. A high credit is great, but if the list price of S/4 is inflated, you might still overpay; tackle both sides (credit and discount).

Q: If we migrate via RISE (SAP’s cloud subscription), what happens to our existing on-prem licenses?
A: In a RISE with SAP deal, you essentially swap ownership for a subscription. Your existing ECC licenses and their maintenance get terminated (so you stop paying maintenance on them), and you sign a new subscription contract for S/4HANA cloud. You lose the perpetual rights to those old licenses once you’re on RISE – in other words, you can’t fall back to ECC usage without re-licensing if you ever left the RISE subscription. Because of this, it’s crucial to negotiate value for your legacy licenses in the RISE deal (e.g., a reduced subscription fee or one-time credits). You should also clarify an exit strategy: if you leave RISE down the road, will you retain any rights or credits to re-establish an on-premises license, or would you have to purchase everything anew? Typically, SAP doesn’t provide an easy path back, so ensure the subscription meets your long-term needs.

Q: Our ECC system runs on a third-party database (Oracle/SQL). Will migrating to S/4HANA require us to purchase SAP HANA database licenses?
A: If you move to S/4HANA on-premise, yes – you’ll need to use SAP’s HANA database as the underlying DB, which is separate from the application license. SAP provides two main options: a HANA “runtime” license (licensed at a percentage of your S/4HANA application volume, and only permissible for use in SAP applications), or a full-use HANA license (which is more expensive but allows broader use of the database for non-SAP data). This is often a hidden cost in S/4 projects. Please ensure that you discuss this with SAP. If you’re doing a contract conversion, negotiate the HANA DB licenses as part of the deal – sometimes SAP can offer a discount on the runtime license or bundle it. If you go to RISE, the HANA database is included in the subscription (you don’t license it separately, but you pay for it as part of the cloud service). In summary, plan and budget for HANA in an on-prem migration scenario and treat it as a negotiable item.

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