Migrating from SAP ECC to S/4HANA – Licensing Conversion
SAP’s 2027 deadline for ECC support is forcing CIOs to plan the move to S/4HANA, but transitioning licenses isn’t a simple swap. This article explains how to migrate your SAP ERP licenses to S/4HANA without overspending.
It covers SAP’s license conversion programs, how to get credit for your existing investments, changes in user licensing models, and common pitfalls to avoid during contract negotiations.
It’s a practical guide for CIOs, CTOs, and procurement leaders to ensure a cost-effective and compliant S/4HANA migration.
Why License Conversion Matters
Migrating from SAP ECC (ERP Central Component) to S/4HANA is not just a technical upgrade – it’s a licensing transformation. SAP does not automatically carry over your ECC licenses to S/4HANA.
Enterprises must acquire new S/4HANA licenses by purchasing them outright or through SAP’s conversion programs. Understanding these options is crucial because the costs can be significant, and the wrong approach may lead to paying for more than you need.
With ECC’s end-of-life looming in 2027, companies that delay face rising support fees and dwindling incentives. A proper license conversion strategy can turn this migration into an opportunity to optimize costs, whereas a misstep could turn it into a budget buster.
Key point: Early planning and savvy negotiation can protect your budget. SAP often provides conversion incentives for moving to S/4HANA early (such as credits or extended support deals), which may disappear as the deadline nears. CIOs should leverage the situation to get the best terms for their organization.
Read SAP S/4HANA Cloud (RISE) vs. On-Premise Licensing.
SAP’s License Conversion Programs: Contract vs. Product Conversion
SAP historically offered two main paths for existing customers to transition their licenses:
- Product Conversion (legacy approach): An older program where you could directly swap certain ECC licenses for equivalent S/4HANA products. This was a one-time “license swap” mechanism. However, this option is largely retired and was only available for a limited time. Companies that didn’t take advantage will likely need to pursue the contract conversion route now.
- Contract Conversion (License Exchange & Credit): The primary method today. You essentially tear up your old ECC license contract in a contract conversion and negotiate a new S/4HANA contract. SAP will give credit for the net value of your existing licenses toward the S/4HANA licenses, based on what you own and what will be replaced. For example, if you have $5 million worth of ECC licenses, SAP might offer a certain credit (not always 1:1) to offset the cost of new S/4HANA licenses. The exact credit is negotiable – SAP evaluates which old licenses are being used or are relevant to S/4HANA. Unused licenses (shelfware) might not garner much credit, so it’s in your interest to identify and potentially terminate unused licenses before conversion negotiations.
Moving to RISE with SAP (S/4HANA as a subscription) is also a form of contract conversion. In a RISE deal, you scrap your old perpetual licenses and start fresh with a subscription contract.
SAP might provide incentives like extension of ECC support or credits if you choose RISE, but your old licenses won’t carry forward – they become valueless outside of negotiated credits. If you’ve spent heavily on ECC in the past, switching to RISE without sufficient credit could mean “double paying” for rights you once bought.
Tip: Begin discussions with SAP early about conversion programs. If you’re moving to S/4HANA on-premise, push for a License Exchange Agreement that clearly states how much credit you get for each legacy license.
If considering RISE, ask for detailed financial comparisons to ensure the subscription pricing accounts for your past investments.
Read SAP S/4HANA and HANA Database Licensing – Runtime vs. Full Use.
Maximizing the Value of Your Existing Licenses
One of the biggest pitfalls in S/4HANA transitions is failing to maximize the value of what you’ve already paid for.
Here’s how to approach it:
- Audit and Clean House First: Conduct an internal license audit on your ECC environment before signing a conversion deal. Identify shelfware – users or modules that are licensed but not actively used. For instance, you might find that 15% of your named users haven’t logged in for over 6 months or have engine licenses (like SAP CRM or industry solutions on ECC) that you aren’t using. By returning or terminating those licenses before conversion (if your contract allows) or at least excluding them from the conversion scope, you avoid paying maintenance and strengthen your case for not counting them. SAP’s standard policy is that you can’t get a refund on unused licenses, but you can stop paying maintenance on them if you terminate them, which also means SAP can’t count them as value to offset in your new deal (since you don’t need their equivalent in S/4).
- Negotiate for License Credits: SAP’s license conversion credit is not automatic or uniform. You should negotiate aggressively for credit for the licenses you’ve invested in. For example, if you historically spent $10M on ECC licenses, you might aim to get a significant percentage of that as a discount off the S/4HANA list price. Be aware that you likely won’t get 100% credit (SAP will argue that you got years of use out of ECC). However, customers have secured deals where a substantial portion of their ECC investment was recognized. Support your negotiation with data: show how much your ECC footprint maps to S/4HANA functionality and emphasize your willingness to migrate sooner if the deal is favorable.
- Consider Phased Conversion: You don’t necessarily have to convert everything simultaneously. Some enterprises negotiate a phased approach – for example, converting core ERP licenses now and holding onto certain legacy product licenses a bit longer if they’re not immediately moving those systems to S/4. This can preserve value and avoid over-committing. Remember SAP’s policies (like Dual Maintenance or Extension policies) – SAP has a “Cloud Extension Policy” that allows you to reduce on-prem maintenance costs proportional to new cloud subscription spend. Leverage such programs to avoid paying double maintenance during a transition period.
User Licensing Changes: Named Users vs. FUEs
One major change in S/4HANA licensing, especially if you opt for a cloud model like RISE, is how user licenses are counted:
- Under ECC and traditional on-premise S/4HANA, you license Named Users in specific categories (e.g., Professional User, Limited Professional, Employee Self-Service, Developer, etc.). Each user is assigned a license type based on their usage needs, and strict rules ensure users have the correct type. Typically, a Professional User license (with broad access) might cost perhaps $3,000–$4,000 per user (one-time, plus annual support ~22%), whereas a Limited User could be a fraction of that. Companies often have thousands of named users in different tiers in an ECC environment. A common issue is misclassification – e.g., someone performing advanced tasks using only a Limited license, which can cause compliance problems, or over-licensing users with more expensive licenses than necessary, which wastes money.
- In S/4HANA cloud subscriptions (RISE), SAP introduces the concept of Full User Equivalents (FUE). Instead of purchasing distinct named-user licenses, you purchase several FUEs, and each user role consumes a portion of an FUE based on its weight. For example, under an FUE model, a “Productivity” user might count as 0.1 FUE, a “Core” user 0.2 FUE, and an “Advanced” user 1.0 FUE (these weights are illustrative). If you have 100 users with varying roles, SAP calculates how many FUEs those users consume. You then subscribe to that many FUEs in your contract. This model can simplify licensing (one metric instead of many user types), but it requires careful sizing. If you over-estimate and lock in 1000 FUEs and only need 800 FUEs, you still pay 1000 for the contract term. Conversely, if you underestimate it, you could face compliance issues or need to buy more FUEs later at possibly higher rates.
Pitfall:
Overestimating user counts during conversion. To be “safe,” many companies convert all their existing named users into the new model even if not all are active. This can inflate costs unnecessarily. Whether sticking with named user licensing on-prem or moving to FUE, take the time to right-size your user licenses.
This might involve redistributing users to cheaper license types before conversion or eliminating dormant accounts.
For instance, before converting, you might downgrade some Professional users to a Business or Employee user license if their usage is light—this ensures that when you convert to S/4, you’re not converting an unnecessarily expensive license.
SAP even offers tools (and sometimes a “Digital Access Evaluation” for documents) to help measure usage; use these to your advantage to create an accurate licensing baseline.
Preparing for a Smooth License Migration
To navigate the transition effectively, CIOs and ITAM teams should follow a structured approach:
- Inventory Your Contracts: Gather all your existing SAP contracts, including purchase orders and order forms. Understand exactly what licenses you own (user types, engine metrics, third-party applications, etc.) and what you pay in annual maintenance. Also, note any special clauses (like swap rights or termination rights) that could be relevant.
- Measure Current Usage: Use SAP’s License Administration Workbench (LAW) or audit tools to measure how many users use the system. Identify the peak usage of any package/engine licenses (e.g., how many cores of SAP ERP or how many records in SAP HR you’re licensed for vs. used). This data is gold when negotiating – it prevents SAP from selling you capacity you don’t need for S/4HANA.
- Map to S/4HANA Equivalents: Work with your SAP account rep or an independent licensing advisor to map your ECC products to S/4HANA products. Determine which licenses will have a direct counterpart (e.g., SAP Finance module in ECC to S/4HANA Finance) and which might become obsolete or renamed in S/4. SAP S/4HANA is more modular in some areas – you might need new licenses for things included in ECC or vice versa. For example, some ECC add-ons might be standard in S/4, while other capabilities might require new licenses.
- Scenario Cost Modeling: Create a side-by-side cost scenario for at least three cases: staying on ECC (with extended maintenance or third-party support), migrating to S/4HANA on-premise (perpetual license), and moving to RISE (subscription). Include license costs (net of any credits SAP offers), maintenance or subscription fees over a 5- to 10-year period, one-time migration costs, and infrastructure costs. This TCO model will highlight the financial trade-offs. Often, on-prem may look cheaper over, say, 5+ years since you pay upfront and then 22% annually, whereas RISE spreads costs annually but might accumulate more expense long-term. Having these numbers equips you to negotiate – if SAP’s RISE quote is higher than your on-prem model over 5 years, you can ask them to sharpen the pencil or throw in extras.
- Negotiate Key Terms: When finalizing your S/4HANA license agreement, focus on critical terms:
- Price Protections: If you’re phasing your migration (buying some licenses now, some later), negotiate a price hold or cap on future purchases so you don’t face a different (higher) price list later.
- Flexibility on Users: Ensure the contract allows some flexibility in adjusting user counts. In a subscription, see if you can include a clause to reduce volumes by a certain percentage or to true-down at renewal if needed (SAP contracts traditionally don’t allow reducing subs mid-term, but you might negotiate for a future period adjustment).
- Indirect Access Clause: As you move to S/4HANA, ensure your new contract addresses indirect/digital access. For example, if you choose the document-based licensing for indirect use, have SAP include a certain number of digital access documents or a discount program (SAP had a Digital Access Adoption Program) to mitigate surprise costs.
- Preserve Perpetual Rights (if possible): If you are only partially migrating, try to retain rights to your remaining ECC licenses. If you go full RISE, accept that you’re giving up perpetual rights – then emphasize getting contract safeguards (like what happens if you exit RISE – e.g., a right to revert to on-prem licenses at some cost, if you negotiate that).
- Audit & Termination: Look at audit clauses—ensure you have reasonable notice and a remediation period for compliance issues in the new contract. And check termination terms, especially for cloud services: What happens if you don’t renew—can you still access your data, etc.?
Common Pitfalls to Avoid
Even with preparation, there are traps that enterprises fall into during S/4HANA transitions:
- Assuming “Technical Upgrade = Free”: Some executives mistakenly think that moving to S/4HANA software is just a technical upgrade and should be free because they have ECC. In reality, without a contract, you will pay for S/4 licenses. Failing to budget for this can lead to sticker shock. Always clarify the licensing costs independent of project (hardware/consulting) costs.
- Rushing into RISE without TCO Analysis: RISE with SAP (the all-in-one subscription) is attractive for its simplicity and quick start. But if you don’t analyze the long-term costs, you might lock into a 3- to 5-year contract that is more expensive than anticipated. For example, RISE bundles a lot (software, infrastructure, support) into one price – it might hide high costs for extra storage or high user counts. Additionally, after the initial term, subscription prices can increase. Don’t assume RISE is always cheaper; run the numbers and negotiate caps on renewal increases.
- Not Securing Credits/Incentives Upfront: SAP sales teams may dangle incentives (like extra discounts, extended ECC support, or even cloud platform credits) to close a deal by a certain quarter. Once you sign, however, you lose leverage. Make sure all promises are written into the contract. If SAP says, “We’ll give you x% credit for unused licenses” or “We’ll extend your ECC support to 2030 at no extra charge if you sign RISE now,” get it documented.
- Ignoring the Change in Support Costs: If you convert licenses, your maintenance base will reset. For on-prem S/4HANA, annual support is typically 22% of the net license price. If you get a big discount on S/4 licenses, note that 22% will be charged to that lower number – that is good for you. But if you convert fewer licenses at a higher unit price, your support could be higher in absolute terms. Also, once you drop ECC licenses, you can’t decide later to put them on cheap third-party support, and then return them – those licenses will be gone. Understand the ongoing support cost implications of your conversion choice.
- Underestimating Indirect Access in the New Environment: S/4HANA may lead to new integrations (e.g., using SAP’s APIs, connecting new cloud services). Indirect use risks continue in S/4. Some customers think moving to digital access licensing (documents) solves the problem, but document usage can grow and incur charges if not monitored. Be sure to include indirect access compliance in your post-migration management (set up monitoring for how third-party apps create SAP documents or consume SAP data).
Recommendations
- Start Early: Begin license conversion planning at least 12–18 months before your S/4HANA go-live. Early movers have more negotiating leverage and access to SAP incentive programs.
- Audit and Optimize Before Conversion: Perform an internal license audit on ECC. Retire unused licenses and reclassify users to the correct license types before presenting your baseline to SAP.
- Leverage SAP’s Urgency: Use the looming 2027 ECC deadline as leverage. SAP is motivated to move customers to S/4HANA, so push for migration credits, discounted S/4 packages, or extended support in writing.
- Compare All Options: Build a detailed TCO comparison for on-prem vs. RISE vs. staying on ECC longer. Include at least a 5–10 year horizon. Let the data drive your negotiation – for example, if RISE is more expensive by year 5, ask SAP to adjust the pricing.
- Negotiate Flexible Terms: Insist on contract terms that allow some flexibility: rightsizing at renewal, price increase caps, and clear exit clauses. Don’t accept a standard contract if it locks you in too rigidly; many terms can be adjusted if you ask.
- Protect Against Indirect Fees: If moving to the digital access model for indirect use, negotiate some included document capacity or discounts on excess. Get clarity on how indirect use will be handled in your new contract to avoid future audit surprises.
- Plan for HANA Database Licensing: Remember that S/4HANA requires HANA. Decide if you’ll purchase a HANA runtime or full license (if on-prem) and include that in the negotiation or RISE package. (See the next article on HANA licensing.)
- Engage Experts: Consider using an SAP licensing advisor or software asset management expert to validate SAP’s proposals. They can often identify hidden costs or better optimization strategies that SAP won’t volunteer.
- Test Before Full Cutover: If possible, do a smaller S/4HANA conversion first (like a sandbox or non-production environment) and use that to verify license requirements in real life. This can reveal if your initial user or document counts were misestimated, which you can adjust.
- Maintain Executive Oversight: Treat the licensing workstream equally to the technical migration. CIOs/CTOs should regularly review the license transition plan to ensure it aligns with budget expectations and strategic goals (e.g., if the strategy is cloud-first, maybe paying a bit more for cloud is acceptable, but it should be done consciously).
FAQ
Q: Do we need to pay for S/4HANA licenses if we already paid for SAP ECC?
A: Yes. S/4HANA is a new product line, so new licenses are required. SAP offers conversion credits to help offset the cost, but it is not a free upgrade. Without a negotiated conversion deal, you would buy S/4HANA licenses from scratch.
Q: What is the difference between product conversion and contract conversion in SAP licensing?
A: Product conversion was an older program allowing a direct swap of certain ECC licenses for S/4HANA equivalents, but it’s mostly phased out. Contract conversion is the modern approach where you sign a completely new S/4HANA license contract and terminate or convert the old one, ideally with credit for the licenses you previously owned. Contract conversion is more flexible but requires negotiation to maximize credit and align new licenses with what you need in S/4HANA.
Q: How much credit will SAP give for our existing ECC licenses?
A: It varies. SAP might value your licenses based on the unused maintenance value or the specific products you own. For example, if you have a lot of shelfware, SAP may give little to no credit for those. On the other hand, if your licenses are fully utilized and directly needed in S/4, you could negotiate significant credit. Some companies have reported getting anywhere from 40% to 80% of their original license value as credit, but results differ widely. The key is to negotiate and not accept the first offer blindly.
Q: What happens to our existing licenses if we move to RISE with SAP (cloud subscription)?
A: In a RISE deal, your existing on-premise licenses are usually terminated (you stop paying maintenance on them) , and you start a new subscription. You lose the perpetual rights to those licenses when you switch to a subscription. Think of it as trading ownership for a rental. That’s why ensuring you get some value (like a discount or incentive) for those retired licenses is critical. Also, if you ever leave RISE, you would have to procure new licenses or revert to an older contract if you negotiated that possibility (which is rare).
Q: Our ECC system runs on a third-party database (Oracle/SQL Server). Will moving to S/4HANA force us to buy HANA licenses?
A: S/4HANA only runs on the SAP HANA database. You must license HANA separately if you deploy on-premise (or in a private cloud you manage). SAP sells a HANA runtime license for use only with S/4 (cheaper, limited) or a full-use HANA license (more expensive, but can be used for other applications too). If you go with RISE, the HANA license is bundled with the subscription, so you don’t have to buy it separately. Including the cost of HANA database licenses in your migration budget is important if you’re not using RISE. (See the next article for details on HANA licensing options.)
Q: What are the major gotchas in S/4HANA contracts we should watch for?
A: Key gotchas include: lock-in duration (most S/4 contracts, especially cloud, lock you in for multiple years with no reduction in fees if usage drops), annual price escalators (e.g., a 5% uplift in subscription fees each year – negotiate those down or capped), restricted flexibility (no ability to swap one product for another if you over-buy), and indirect usage terms (make sure it’s clear whether indirect access is covered by named users, FUE, or requires document licenses). Also, ensure any future S/4HANA functional enhancements you might expect are clarified – for instance, if SAP changes licensing metrics or introduces new modules, know how that affects you.
Q: Can we transition only part of our landscape to S/4HANA and keep some ECC licenses?
A: Yes, many large enterprises do a phased migration. You might convert licenses for one environment or region to S/4HANA and keep ECC running elsewhere for some time. In such cases, you’ll maintain some ECC licenses (and maintenance on them) while buying S/4 licenses for the new system. SAP’s conversion programs can accommodate partial conversions, but you’ll need to be clear in negotiations about which licenses are converting and which remain. Also, be mindful of how indirect access might work between new S/4 and old ECC systems (you don’t want to double-license users who use both, if possible).
Q: What happens if we delay moving to S/4HANA until after 2027?
A: Technically, you can keep running ECC after 2027, but SAP’s standard support will end. Extended support (through 2030) comes at an extra cost (e.g., +2% maintenance or more). Afterward, you’d need to run unsupported, seek third-party support, or migrate. Also, SAP could tighten policies – for example, they might not offer as generous conversion credits if you wait too long. There’s also a risk that if you’re too late, the rush of other companies could mean fewer resources (consultants) available to help with your migration. In short, delaying can increase cost and risk, so have a clear strategy if you decide to wait (and consider third-party support as an interim measure to save money).
Q: How do Full User Equivalents (FUEs) translate to user counts?
A: FUE is essentially a weighted user metric. SAP will work with you to categorize your users into roles like Self-Service, Core, Advanced, etc., each with an assigned weight (fraction of an FUE). For example, 1 Advanced user might = 1 FUE, 1 Core user = 0.5 FUE, 1 occasional user = 0.1 FUE, and so on. These weights differ according to the contract and SAP definitions. If you had, say, 100 Advanced, 200 Core, and 300 Self-service users, SAP would calculate something like 100(1.0) + 200(0.5) + 300(0.1) = 100 + 100 + 30 = 230 FUEs. You would then subscribe to 230 FUEs. The idea is to simplify licensing, but the challenge is determining those ratios accurately. It’s wise to periodically measure your user activity because if your usage pattern changes (more heavy users than you planned), you may consume FUEs faster than expected.
Q: Should we consider third-party support for SAP to save money during the transition?
A: Some companies do. Third-party providers (like Rimini Street, Spinnaker, etc.) can support ECC for about 50% of SAP’s maintenance fees, which is tempting if you plan to stay on ECC beyond 2027 or need budget relief. The downside is that SAP typically will not allow license conversion credits for customers without SAP support or lapsed support. So, if you leave SAP support for a while, you might have to pay a reinstatement fee or lose some incentives when you eventually migrate. It can be a good short-term cost saver, but weigh it against potential impacts on your migration deal. If you’re pushing your S/4 move out, third-party support could bridge you for a few years – just go in with eyes open about re-engaging with SAP when you’re ready to convert.
