Leveraging Cloud vs. On-Premise Credits in SAP Deals: Avoiding Double Payment
Executive Summary:
Global enterprises transitioning from on-premise SAP software to cloud solutions must carefully manage their contracts to avoid paying twice for the same functionality.
By leveraging cloud vs. on-premise credits in SAP deals, companies can apply the value of existing licenses and support fees toward new cloud subscriptions, preventing costly double payments.
This advisory outlines how to utilize SAP’s conversion credits, effective timing strategies, and negotiation tactics to make the transition to the cloud cost-effective and minimize overlapping expenses between on-premise and cloud solutions.
The Double Payment Dilemma in SAP Contracts
Moving an SAP environment to the cloud is a complex undertaking – and without the right precautions, it can lead to a double payment dilemma.
This occurs when an enterprise ends up paying for on-premise licenses and maintenance as well as new cloud subscriptions for the same or overlapping capabilities.
In effect, the company is paying twice for SAP software during a transition period or due to contract overlap.
For example, imagine a firm that already pays annual maintenance for its SAP ERP (on-premise) and then signs a cloud subscription for the new SAP S/4HANA Cloud mid-year.
If not addressed, the company might continue paying on-premise support for the rest of the year and start paying the cloud subscription, effectively doubling the costs.
This type of oversight can result in millions of dollars in unnecessary spending.
Why does this happen? Often it’s due to timing mismatches and rigid contracts. Maintenance fees are typically paid annually in advance, and cloud deals may take effect on SAP’s timeline rather than the customer’s.
Without adjustments, a portion of the on-premise investment is wasted, and the new cloud fees pile on top of it.
The result is an overlap where budget is wasted on duplicate coverage – essentially paying SAP for two licensing models simultaneously.
The double payment risk isn’t just theoretical; many enterprises have faced it during SAP contract conversions or RISE with SAP migrations.
Short parallel runs of old and new systems are usually necessary (for data migration, testing, etc.), but they need not result in double fees if managed correctly.
The key is recognizing this risk upfront and structuring your SAP deal to avoid paying for both on-premise and cloud for the same users or modules during any period.
In the sections below, we’ll explore how leveraging cloud vs. on-premise credits and smart negotiation can eliminate this costly overlap.
Cloud vs. On-Premise Credits Explained
When we talk about “credits” in SAP deals, we mean financial offsets or trade-in value that SAP offers to recognize your past investments.
On-premise license credits refer to the value of your existing SAP licenses and support payments that can be credited toward a new purchase.
Cloud credits in this context are incentives applied to a cloud subscription deal, effectively reducing its cost because you already paid for on-premise software.
In practice, leveraging cloud vs. on-premise credits in SAP deals means using what you’ve already spent on SAP to avoid spending twice.
SAP’s goal is to entice customers into the cloud, so it often provides license conversion programs or Cloud Extension policies that let you exchange or retire on-premise licenses in return for discounts on cloud subscriptions.
For example, if you have a large number of unused SAP licenses (“shelfware”) or recently paid a big maintenance bill, SAP may offer a one-time credit applied to your first-year cloud subscription fee.
This credit acknowledges the money you’ve invested in the old system and helps ensure you’re not paying double during the transition.
How do these credits work?
Typically, SAP will calculate a credit based on factors like the list price of licenses you are giving up, how much maintenance you’ve paid recently, and the strategic value of getting you onto the cloud.
In some cases, enterprises have negotiated credits approaching the full value of one year’s maintenance fees or more.
For instance, a company paying $5M annually in SAP support might get a $5M credit toward the first year of a new cloud deal – essentially making that first year’s subscription cost-neutral.
More commonly, the credit might cover a significant portion of the initial subscription cost (e.g., 50% or 60%), giving immediate budget relief.
The exact amount is not standardized; it’s subject to negotiation and depends on your specific situation (volume of licenses, timing, how keen SAP is to secure your cloud commitment, etc.).
It’s important to note these credits are not literal cash back, but rather discounts applied to the cloud contract.
They reduce the subscription fees you owe. By leveraging these credits, you’re effectively using your past on-premise payments as a bargaining chip to lower future cloud costs.
The outcome should be that your spending remains roughly in line with one environment at a time, not both simultaneously.
SAP’s Incentive Programs and the Push to Cloud
SAP has a strong motivation to transition its customer base to cloud subscriptions, and it has created incentive programs to facilitate this transition.
Understanding these programs will help you maximize credits.
One key initiative is SAP’s Cloud Extension Policy (sometimes referred to as the Software Credit Program), which enables customers to terminate on-premise licenses and maintenance in exchange for cloud services.
Under this policy, if you decide to replace a traditional license with an equivalent cloud solution, SAP will terminate the old license (so you’re no longer charged maintenance on it) and often provide a credit towards the new subscription.
Essentially, SAP converts your on-premise investment into a discount on the cloud side.
Another example is the RISE with SAP offering for S/4HANA Cloud. SAP often bundles generous incentives for RISE deals: early adopters have seen maintenance credits and special discounts that drastically reduce the first-year cost.
In some case,s a company moving from SAP ECC on-premise to RISE got credits worth nearly their entire remaining maintenance value.
SAP’s strategy here is to make the cloud transition financially attractive (at least initially) so that cost isn’t a barrier to switching.
From the enterprise perspective, this is an opportunity to avoid double payment if you grab those incentives at the right time.
However, these incentives have a lifecycle. Early in a program, SAP’s credits and discounts tend to be more generous to jump-start adoption.
As time goes on (and deadlines like 2027’s end of ECC mainstream support loom closer), SAP may dial back the credits because customers have fewer alternatives.
For example, a few years ago, you might have received a credit equal to 100% of your unused support if you migrated to S/4HANA Cloud; today, that credit might be reduced to, say, 50%.
If you wait too long, you may miss out on millions in potential savings and end up bearing more of the transition costs yourself.
Timing matters – acting during an active incentive window can greatly reduce or eliminate overlapping spend.
It’s also worth noting that SAP’s offers often come with conditions.
A credit may be contingent upon signing a multi-year contract or transitioning off the old system entirely (not a partial move).
The logic from SAP’s side is clear: they are willing to offset your costs upfront to lock in a long-term cloud subscription.
This is why negotiating these terms is critical – you want to maximize the upfront credit while ensuring you’re not locked into a bad deal down the road.
In the following sections, we’ll discuss how to align timing and negotiate effectively to maximize the benefits of these programs without surprises.
Timing Is Everything: Aligning Contracts to Avoid Overlap
One of the most practical ways to avoid double payment is to carefully align your on-premise and cloud contract timelines.
The goal is to have a clean handover: as soon as you start paying for the SAP cloud subscription, you stop paying for the redundant on-premise maintenance.
Achieving this requires coordination and often some negotiation, but it can result in significant savings.
Align with maintenance renewal cycles:
SAP maintenance is usually billed annually (often on a calendar year or anniversary of purchase). Plan your cloud go-live or contract start date to coincide with the end of a maintenance period.
For example, if your maintenance renewal is every January 1st, target that date (or immediately after) for the new cloud subscription to commence.
This way, you can non-renew or terminate maintenance just as the cloud service begins, ensuring you’re only funding one environment at a time.
Any prepaid support fees should be prorated and credited back. Don’t hesitate to request a refund or credit for unused months if you cancel maintenance mid-cycle.
Negotiate a proration for mid-year moves:
If you must start a cloud subscription before your maintenance term ends, consider negotiating with SAP to credit the unused portion of your maintenance.
Suppose you paid for 12 months of support, and after 6 months, you’re migrating to the cloud.
Ask SAP to apply the value of the remaining 6 months toward the cloud subscription fee. Often, SAP can accommodate this by reducing your cloud bill or extending a discount equivalent to that overlap.
The result: you avoid double-paying for those overlapping months.
Include a dual-use grace period:
In practice, you may need to run your old SAP system in parallel with the new cloud system for a short period (for data migration, user training, or contingency purposes). Ensure your contract includes a dual-use period where both the on-premise and cloud can be used without incurring extra license charges.
SAP typically allows a 6- to 12-month dual-use window for such transitions, but this must be explicitly stated in the contract. This protects you from compliance issues – you won’t be penalized for having both systems up as long as it’s within the agreed timeframe.
During this window, you shouldn’t be paying full support for the old system; either it has already been terminated or is running in a limited state (for example, read-only). In effect, dual-use clauses allow you to transition smoothly without incurring duplicate costs for user licenses during the overlap.
Don’t forget partial migrations:
Many enterprises move in phases – perhaps rolling out SAP cloud for one division or module while others remain on-premise temporarily.
In these cases, adjust your on-premise licensing accordingly. If you move a subset of users or a specific module to the cloud, you should reduce your on-premise license counts or drop maintenance for that component at the same time.
Otherwise, you’d pay for the cloud subscription while still paying maintenance for software you no longer fully use.
For instance, if you switched your HR system to SuccessFactors (SAP’s cloud HR) but still have an SAP HCM on-prem license, negotiate to eliminate or suspend maintenance on the on-prem HCM once the cloud is live.
You might even secure a discount on the remaining on-prem products since your overall footprint is smaller.
The key is to proactively true-up (or down) your on-prem contract so it reflects only what you continue to use.
Timing and contract alignment may require some project management coordination between your IT, sourcing/procurement, and SAP account teams.
Start those discussions early. Outline your desired cutover date and ask SAP to help facilitate a smooth switch – including financial adjustments.
When done right, the moment you begin paying for the cloud will be the moment you stop paying for the legacy setup, with no gap or overlap.
Negotiation Tactics to Leverage Credits and Avoid Duplication
Negotiating an SAP deal is where you can truly enforce the “no double payment” rule.
SAP is often open to negotiation on these points, especially for strategic customers, but you must ask and be specific.
Here are key tactics and considerations for sourcing and IT procurement teams at global enterprises:
- Make your sunk costs visible: Come to the table with a clear summary of your existing SAP investments – licenses owned, annual maintenance paid, and any unused shelfware licenses sitting idle. Use this to build a case for credits. For example, “We have $10 million in licenses we won’t need post-cloud and pay $2 million a year in support – we expect relief in the new deal to account for this.” By quantifying your sunk costs, you provide a rationale for SAP to convert that value into cloud credits. Successful negotiators often document exactly which licenses will be relinquished and what maintenance was last paid, ensuring that nothing is overlooked.
- Push for maximum credit (and transparency): SAP may not initially offer its best terms, so be prepared to counter. If SAP proposes a 30% credit on your first-year subscription, you can (respectfully) push back by citing your investments or even competitive alternatives. Aim high – some enterprises have achieved credits covering the majority (if not all) of their first-year cloud costs. Also, ask SAP to explain how the credit was calculated. Is it based on unused license value? Remaining maintenance? Understanding this helps you negotiate more effectively and ensures you’re getting a fair deal relative to your assets.
- Bundle and trade wisely: In some cases, you may be negotiating a broader package (for example, adding SAP Business Technology Platform credits or migrating multiple SAP systems simultaneously). Leverage the entire deal size to get better terms. If you are committing more business to SAP’s cloud, ask for more in return – whether it’s larger credits, extra services, or a deeper discount. Conversely, be cautious of “bundle” offers that throw in things you don’t need, as those can inflate the deal. The focus should remain on not paying twice for the core software; everything else should be evaluated based on its real value.
- Lock in future protections: A savvy negotiation doesn’t just address year one costs. Since you are giving up perpetual licenses for subscriptions, ensure you won’t be punished with exorbitant costs later. Negotiate caps on subscription price increases for renewals (for example, no more than a 5% increase per year in the next term) to prevent price shocks after the initial term. While this issue extends beyond immediate double payment concerns, it’s directly related to achieving fair long-term value from the credits you negotiate today. After all, a big upfront credit means little if SAP doubles your fees in three years.
- Contractual clarity on the retirement of old licenses: Insist that the contract lists which on-premises licenses are being terminated or put into suspension as part of the cloud migration. It should state that you will not be charged maintenance on those licenses in the future. If you have already paid, the contract (or order form) should note any credit or adjustment. Having this in writing avoids any “surprise” bills later for licenses you thought were retired. It also ensures both you and SAP have a common understanding of what parts of your entitlements have been swapped out for the cloud subscription.
- Retain fallback options if possible: This can be challenging, but consider negotiating an exit or fallback clause. For example, if the cloud arrangement doesn’t work out, can a portion of your credit be applied to reactivating some on-premise licenses? SAP is generally resistant to this (they want to avoid giving you a way back), but raising the question can sometimes lead to creative solutions or at least signal to SAP that you’re mindful of not getting trapped. At a minimum, being aware of the lock-in effect will encourage you to negotiate harder on the upfront terms (since you won’t easily get a do-over later).
Remember, everything is negotiable to a degree. Large enterprises, in particular, have leverage – SAP doesn’t want to lose a big customer or face bad press over double-charging a Fortune 500 firm.
Use that leverage by being informed (know SAP’s programs and what other companies have received) and by being willing to walk away or delay if the offer isn’t right.
Engaging an independent licensing advisor or consulting firm can provide benchmarks from other deals and strengthen your position.
The bottom line is: make “no double payment” a non-negotiable goal internally, and approach SAP with a plan to achieve it.
Often, simply signaling that you’re aware of these issues will lead the SAP sales team to align with your needs, as they know you’re watching every dollar.
Cost Comparison: Avoiding Double Payment in Action
To illustrate the impact of leveraging credits and timing, consider a simplified scenario of an enterprise migrating to SAP’s cloud:
- Current State: $2 million per year spent on SAP on-premise maintenance (support for existing licenses).
- Future State: $2 million per year quoted for an SAP cloud subscription (to replace the on-prem system).
Scenario 1 – No Credits or Alignment (Costly Overlap):
The company renews its on-premise maintenance in January and then signs the cloud deal to start in July.
There is no special credit negotiated. In Year 1, they pay the full $2M maintenance for January–December and approximately $1M for the cloud (subscription fees for July–December).
That’s roughly a $3 million outlay in Year 1, nearly 50% more than their typical annual spend. Over the next years, they’ll pay $2M per year for the cloud, but the first-year overlap caused a significant one-time double payment.
Scenario 2 – Leveraging Cloud vs. On-Premise Credits (Optimized):
The company negotiates to align the cloud start with the end of the maintenance period, beginning the subscription in January of the next year. They also secure credit for the half-year of maintenance they won’t use.
In this optimized scenario, Year 1 under the cloud deal has $0 in overlapping maintenance fees. Essentially, the $1M worth of unused maintenance from the prior year is applied to the cloud bill.
The company pays just the net cloud fee (approximately $2M minus the credit, which is approximately $1M in actual new spending for that first partial year). In the future, it will be $2M per year for the cloud, with no legacy fees.
The transition year cost is kept at the level of a single environment, and the enterprise saves the $1–2 million of overlap that Scenario 1 would have wasted.
The table below summarizes these scenarios:
| Migration Approach | Year 1 Cost to Customer | Ongoing Annual Cost | Result |
|---|---|---|---|
| No Credit / Mid-Year Overlap | $3.0M (maintenance + cloud) | $2.0M (cloud subscription) | First-year double payment – paid for on-prem and cloud concurrently. |
| With Credits & Aligned Timing | ~$2.0M (cloud, with maintenance credit) | $2.0M (cloud subscription) | No overlap costs – on-prem support ended as cloud began, using credits to cover transition. |
In Scenario 2, by leveraging SAP’s credits and carefully timing the contract, the company avoids double payment.
The first-year spend remains in line with the cost of a single system, not two.
Over a multi-year period, this makes a huge difference in the total cost of ownership. Essentially, the enterprise redirected its existing budget (maintenance) into the new subscription seamlessly.
Of course, actual deals have more nuances, but virtually every case of SAP cloud migration can be optimized in this manner.
Companies that fail to do so often look back and realize they paid a “migration tax” in the form of overlaps or unused support.
By contrast, enterprises that proactively manage credits and timing can make the shift to cloud budget-neutral from day one.
Recommendations (Practical Tips for Enterprises)
To ensure you don’t pay SAP twice during your cloud transition, consider these expert tips:
- Baseline your SAP investment: Before negotiating, document all your current SAP licenses and annual maintenance costs. This inventory is your leverage – it quantifies what you’ve already paid for, so you can demand value back in the new deal.
- Plan the cutover date strategically: Align the start of any SAP cloud subscription with the end of an on-premise support period. If needed, extend or shorten your maintenance renewal just once to achieve a clean switchover. The goal is to achieve a seamless transition from maintenance to subscription, with no overlap between the two periods.
- Negotiate conversion credits upfront: Don’t accept a cloud quote without discussing credits. Request explicit trade-in credits for retiring licenses and any prepaid maintenance. If SAP’s initial offer is modest, push for more by highlighting your long-term commitment or citing what peers have received. Remember, if you don’t ask, you don’t get.
- Include a no-overlap clause: In the contract, state that you will not be charged maintenance on licenses replaced by the cloud subscription as of the cloud start date. Have SAP confirm that any overlapping support payments will be refunded or credited. This clause holds SAP accountable to the “no double charge” principle in writing.
- Secure a dual-operation period: Ensure the agreement allows for a defined period of parallel operation for both old and new systems (e.g., 6 months). Crucially, confirm that this dual use is free of additional license fees – it should be covered by the existing contract fees, allowing for a seamless transition without rushing or risking non-compliance.
- Trim the fat during migration: Use the move as an opportunity to eliminate shelfware. Terminate maintenance on any modules or users you won’t need going forward. There’s no point transitioning unused licenses to the cloud or paying upkeep on them. Only pay for what delivers value in the new environment.
- Think long-term, not just Day 1: Evaluate the deal over its full term. A big Year 1 discount is great, but be sure to check the costs for Years 2 and 3. Negotiate caps on price increases and the flexibility to adjust volumes at renewal. This ensures the credit you get isn’t overshadowed by ballooning costs later.
- Document everything: If SAP promises a credit or special consideration, make sure it’s captured in the contract or an addendum. Verbal assurances don’t count. Having all terms in writing avoids disputes later and ensures that both sides follow the plan to prevent double-billing.
By following these recommendations, your enterprise will be well-positioned to leverage cloud vs. on-premise credits effectively and keep your SAP transition cost-efficient.
SAP Enterprise Support Negotiations: How to Cap Maintenance Increases and Boost SLA Value
Checklist: 5 Actions to Take
For sourcing and IT teams embarking on an SAP cloud migration, here’s a step-by-step checklist to avoid double payment:
- Assess and Inventory: Gather a detailed inventory of your current SAP licenses, usage, and annual maintenance spend. Identify which components are candidates for cloud migration and which might be retired. (Output: a clear picture of what you have and what it costs.)
- Engage Stakeholders and Set a Timeline: Coordinate with IT, finance, and procurement to determine a target cloud transition date. Map this date against maintenance renewal schedules. Communicate to SAP that you are planning a switch and share the ideal timing for the transition. (Output: an aligned internal plan for when and how to cut over.)
- Initiate Discussions with SAP: Before signing any documents, discuss conversion options with your SAP account executive. Ask about the Cloud Extension Policy or similar programs. Indicate that you expect credits for existing investments. Provide them with your inventory and ask for a preliminary offer detailing how on-premise licenses can be traded in. (Output: initial terms from SAP, including potential credits and contract provisions.)
- Negotiate Contract Details: Armed with SAP’s offer and your objectives, negotiate the contract. Focus on key clauses: credits/discounts applied, list of licenses to be terminated, effective date aligning with maintenance end, dual-use period allowance, and future price protections. Involve a legal or licensing expert to ensure the language prevents overlapping charges. (Output: a draft contract that meets your no-double-pay criteria.)
- Finalize and Monitor: Sign the agreement once satisfied, but don’t “set and forget.” As you execute the migration, monitor that maintenance bills have stopped for retired licenses and that the agreed credits are correctly applied to your cloud invoices. Monitor usage to prevent any unexpected charges (e.g., exceeding user limits). (Output: a smoothly executed transition with ongoing compliance and cost tracking.)
By following this checklist, you can systematically plan and execute an SAP deal that leverages your existing credits and avoids any double payment trap.
FAQs
Q: What exactly are “cloud credits” in an SAP deal, and how do we use them?
A: In SAP negotiations, cloud credits are essentially discounts or financial offsets given when you move to a cloud subscription. SAP might credit you for the money you’ve already spent on licenses and maintenance by reducing the cost of the new cloud contract. You use them by negotiating – for instance, if you have $1 million of unused support, you ask SAP to apply a comparable amount as a credit to your cloud bill. These credits directly reduce what you pay, so you don’t end up paying twice during the switch.
Q: How can we avoid paying for maintenance and cloud subscription at the same time?
A: The key is timing and contract alignment. Plan your cloud subscription to start at the end of your maintenance term (or at a point where you can cancel maintenance). If an overlap is unavoidable, negotiate a prorated credit for the unused portion of the maintenance period. Additionally, have the contract stipulate that maintenance fees cease (or are refunded) once the cloud is operational. Essentially, structure the deal so that there’s no period where both a support invoice and a subscription invoice cover the same software usage.
Q: We recently paid our annual SAP maintenance, but now we’re moving to the cloud. Are we stuck double-paying?
A: Not necessarily. You should discuss this with SAP. In many cases, SAP will offer to credit the remaining unused maintenance toward your new cloud subscription. For example, if you paid for 12 months and move after 4 months, roughly 8 months of value could be applied as a discount on the cloud fees. The important thing is to bring it up during negotiation – SAP won’t usually refund or credit maintenance unless you ask for it as part of the deal.
Q: If we move only part of our SAP environment to the cloud, what happens to the rest?
A: You’ll want to adjust your on-premise licenses to avoid paying for redundant capacity. That could mean reducing user counts, turning off modules, or terminating licenses for the part that moved to the cloud. You continue to pay maintenance for what remains on-premises (since you still use it), but you stop paying for what has been migrated. It may require renegotiating your existing contract or carving out the components that have been moved. Also, consider asking SAP for flexibility or discounts on the portion that stays on-premise, since your overall footprint with SAP is changing.
Q: Are there any downsides or gotchas to using these SAP credits and conversion programs?
A: The main thing to watch out for is the long-term commitment you’re making. When you use SAP’s credits, you’re usually agreeing to a subscription model and giving up your perpetual licenses. This can introduce lock-in – if, in a few years, you’re unhappy, you can’t fall back on the old licenses (they’ve been surrendered). Additionally, initial credits are one-time; after they’re used, your ongoing cloud fees may be higher than your previous maintenance fees. Always evaluate the total cost over the contract duration. Finally, ensure you need the cloud services you’re subscribing to – sometimes credits can tempt companies to sign up for bundles that include extras they won’t use. In short, use credits wisely, but proceed with caution about future implications.
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