Modeling S/4HANA Licensing Costs After ECC Migration – Scenarios and Formulas
Why Costs Shift After ECC Migration
Migrating from SAP ECC to S/4HANA brings a fundamental change in how licensing costs are calculated.
Under ECC, companies typically used named-user licenses and module engine metrics, but S/4HANA introduces the Full User Equivalent (FUE) model and new subscription options.
This shift means that post-migration SAP licensing cannot be managed with the old assumptions – CIOs and procurement leaders must re-model licensing costs from the ground up.
Key cost drivers change because user roles are defined differently, and some legacy ECC entitlements may not directly carry over.
For example, an ECC Professional User license may be converted into a different S/4HANA user category with a specific FUE weight. Additionally, digital access (indirect usage by external systems) is now monetized via document counts, potentially adding new cost elements.
The net effect is that S/4HANA licensing costs can shift up or down depending on how your users are mapped into FUE categories and the chosen licensing model (on-premise perpetual vs. RISE subscription).
In short, an ECC to S/4HANA cost calculation requires fresh analysis – simply relying on old ECC license counts or costs will likely mislead your budget planning.
Companies need to forecast and optimize post-migration spend using the new frameworks, ensuring they take advantage of any conversion credits and avoid unexpected charges, such as indirect use fees.
FUE Licensing Cost Formula
At the heart of S/4HANA’s user licensing is the Full User Equivalent (FUE) concept. Different types of users count as different fractions of a “full” user. This enables SAP to consolidate various roles into a single metric for licensing purposes.
The common user classes and their FUE weights are:
- Advanced User (e.g. full professional access) = 1.0 FUE each
- Core User (e.g. functional or limited user) = 0.2 FUE each (5 Core users = 1 FUE)
- Self-Service User (e.g. employee self-service) = 0.033 FUE each (≈30 Self-Service users = 1 FUE)
Using these weights, you can calculate your total FUE demand with a simple formula:
Total FUE = (Advanced Users × 1.0) + (Core Users ÷ 5) + (Self-Service Users ÷ 30)
For instance, if you have 50 Advanced, 250 Core, and 1,500 Self-Service users, the total FUE = 50 + (250/5) + (1500/30) = 50 + 50 + 50 = 150 FUE. This FUE cost modeling enables you to translate a mixed user base into a single number for pricing purposes.
Once you have the Total FUE, you determine the Total License Cost by multiplying FUE by the price per FUE. In a subscription model (such as RISE with SAP), there is an annual price per FUE.
For example, a typical rate for FUE is around $2,500 per year (this can vary based on volume and discounts). Using that example rate, 150 FUE would cost about 150 × $2,500 = $375,000 per year in subscription fees.
For on-premise perpetual licensing, you would use an equivalent one-time cost per FUE (for instance, roughly $10,000–$12,000 per FUE as a one-time license fee, which corresponds to the $2,500 per year over 5 years).
The formula is similar: License Cost = Total FUE × Per-FUE Price. The difference is that with perpetual licenses, you pay upfront and then add annual support. We’ll illustrate this in the scenarios below.
(With SAP’s pricing, note that larger FUE volumes often earn discounts. Also, support costs ~22% of license value annually for perpetual licenses, while subscription fees usually include standard support.)
Scenario A – Perpetual Licensing Post-Migration
Scenario A models an on-premise S/4HANA deployment after ECC migration, using a traditional perpetual license model. In this model, you purchase licenses outright for all users (converted to FUEs) and then pay an annual maintenance fee.
Let’s run an example calculation for clarity:
Suppose your migrated S/4HANA system will have 100 Advanced users, 200 Core users, and 600 Self-Service users. Using the FUE formula:
- Advanced: 100 × 1.0 = 100 FUE
- Core: 200 × 0.2 = 40 FUE
- Self-Service: 600 × 0.033 ≈ 20 FUE (since 30 self-service users count as 1 FUE)
- Total FUE = 100 + 40 + 20 = 160 FUE
Next, calculate the license cost. Assume SAP offers a net price of $10,000 per FUE for a perpetual S/4HANA license (after negotiations and any conversion credits).
- Perpetual License Cost = 160 FUE × $10,000 = $1.6 million (one-time payment)
Now add the annual support fee. SAP typically charges 22% maintenance on perpetual licenses for ongoing support and updates:
- Annual Support Cost = $1.6 million × 22% = $352,000 per year
The total cost for Year 1 would be the license purchase plus one year of support, approximately $1.952 million. Each subsequent year, you’d budget $352,000 for support (assuming the maintenance rate stays the same). Over 5 years, Scenario A’s cost would accumulate to about $3.36 million in total spend (license + 5 years of support).
Scenario B – RISE Subscription Model
In Scenario B, we consider the RISE with SAP subscription model using the same user counts. Instead of a big upfront payment, you pay an annual subscription based on the total FUE. This subscription typically includes the software license, infrastructure (cloud hosting), and support in one fee.
Using the previous example’s 160 FUE, and assuming an annual subscription rate of $2,800 per FUE (a sample rate for illustrative purposes):
- Annual Subscription Cost = 160 FUE × $2,800 = $448,000 per year
This $ 448,000 per year covers S/4HANA licensing and standard support, as long as you’re subscribed (no separate maintenance fee).
Over five years, the cumulative cost would be $2.24 million in subscription fees. There is no large capital outlay – costs are spread evenly each year, which many CFOs prefer as an operating expense (OpEx) model.
To put it in perspective as a subscription vs perpetual cost comparison: in Scenario A, the five-year total (including support) was about $3.36M, whereas Scenario B’s five-year total is $2.24M.
In this simplified comparison, the subscription model is over $1 million cheaper over the five years. This illustrates how RISE can be cost-effective, especially if SAP has bundled discounts or if you want to avoid upfront expenditure.
However, keep in mind that after the five-year mark, the perpetual model’s costs would level out to the support fees only (~$ 352,000/year), whereas the subscription would continue at $ 448,000/year and possibly escalate if not locked in.
Decision-makers should weigh the time horizon: a subscription can save money in the mid-term, but owning licenses might pay off in the very long run. The key is to model these scenarios for your specific situation.
Scenario C – Hybrid Licensing Split
Some organizations adopt a hybrid licensing strategy after migration, using a combination of perpetual and subscription licenses to strike a balance between cost and flexibility.
Scenario C models a split where, for example, you keep Core and Self-Service users on perpetual licenses (since they are lower cost per user) and put Advanced users on a RISE subscription (for flexibility and to offload heavy usage to the cloud service).
Using the same user counts (100 Advanced; 200 Core; 600 Self-Service), here’s a hybrid licensing cost analysis:
- Advanced Users (Subscription): 100 Advanced = 100 FUE. At $2,800 per FUE annually, this portion is
100 × $2,800 = $280,000 per year. - Core + Self-Service Users (Perpetual): 200 Core + 600 Self-Service = 60 FUE (as we calculated, 40 + 20). At $10,000 per FUE one-time, this portion costs
60 × $10,000 = $600,000upfront. - Support for Core/SS: Annual maintenance on the perpetual part = $600,000 × 22% = $132,000 per year.
Now let’s combine these for a full picture:
Year 1 cost: You would pay the $600,000 license fee for core/self-service users, plus the first year of RISE subscription for advanced users ($280,000) and support ($132,000) on the perpetual portion. Year 1 total = $600K + $280K + $132K = $1.012 million.
Annual recurring cost (Year 2 onwards): You pay the subscription and maintenance each year = $280,000 + $132,000 = $412,000 per year. Over 5 years, the total cost of this hybrid approach would be roughly $2.66 million (including the initial license outlay and five years of fees).
Comparing the three scenarios, the hybrid model’s 5-year cost falls between the all-perpetual (Scenario A: $3.36 million) and all-subscription (Scenario B: $2.24 million) approaches. The hybrid scenario demonstrates the trade-off: you save on subscription fees by owning the cheaper user licenses, but you still incur some upfront cost and maintenance.
This approach can be useful if you want to optimize costs by investing capital in stable, low-cost user licenses, while using subscriptions for high-value power users or those with uncertain growth.
It provides flexibility to scale your Advanced user count via RISE, while keeping long-term costs in check for the larger base of Core and Self-Service users. Each organization can adjust the split based on its usage patterns and financial preferences.
Optimization Levers
Even after choosing a licensing model, there are ways to optimize and reduce post-migration spend.
Below are key tactics and levers to consider for migration cost optimization (2025 and beyond), each with a formula or approach to quantify the savings:
- User Reclassification Savings: Audit and reclassify users to the lowest appropriate license type. Every user that can be downgraded from an Advanced (1.0 FUE) to a Core (0.2 FUE) or Self-Service (0.033 FUE) license yields savings. Savings per user = (Old FUE weight – New FUE weight) × Price per FUE. For example, moving one user from Advanced to Core saves
1.0 – 0.2 = 0.8 FUE. At $2,500 per FUE/year, that’s $2,000 less per year for that user. Across dozens of users, the savings from user reclassification add up significantly. - Digital Access Cost Impact: Account for indirect usage in your cost model to avoid surprises. S/4HANA’s digital access licensing charges for documents (e.g. sales orders, invoices) created by external systems or partners. Estimate the volume of such documents and multiply by the per-document rate or pack price. For example, the cost is calculated as Document Volume × Rate. If you expect 100,000 external documents a year and SAP’s rate is $0.50 per document, budget an extra
100,000 × $0.50 = $50,000amount annually for digital access. Optimizing integrations or purchasing a flat-rate document license (typically around 10% of the license value for unlimited documents) can help mitigate this cost impact. - Conversion Credits: Leverage SAP’s license conversion credits when migrating to reduce net new spending. SAP often provides credit for the residual value of your ECC licenses when you move to S/4HANA. Time your migration to maximize these credits (as programs and incentives may expire or devalue over time). The effect is a simple subtraction in your cost model: Net Cost = Modeled S/4 License Cost – Credit Value. For example, if your calculated S/4HANA licenses cost $2 million but you have $1 million worth of credit from existing licenses, your net new cost is $1 million. By applying credits strategically, you can substantially offset migration licensing costs.
- Scale for Demand Peaks: Don’t overpay year-round for short-term capacity needs. If your SAP usage experiences seasonal or periodic peaks, consider negotiating a model to scale FUE for peak demand. For instance, you might contract a base FUE count with the option to add extra users temporarily. Ensure the contract defines an overage rate for additional FUEs above the base. The cost formula might look like: Peak Period Cost = Base FUE × Base Rate + Extra FUE × Overage Rate. Say your base is 160 FUE at standard rate, and for three months you need 20 extra FUE. If the overage rate is slightly higher (e.g. $3,000 per FUE for the short term), your peak quarter cost =
160×$2,800 + 20×$3,000. This is likely cheaper than sizing your subscription for 180 FUE all year. By planning for demand peaks with flexible terms, you avoid paying full price for capacity you only use occasionally.
Each of these levers can contribute to lower post-migration SAP licensing expenses. Proactively manage user roles, indirect usage, and contract terms to keep your S/4HANA licensing efficient. Taken together, these tactics form a toolkit to achieve significant migration cost optimization in your S/4HANA environment.
Executive Action Plan
To wrap up, here’s a checklist for CIOs and program leaders to model and control S/4HANA licensing costs after an ECC migration:
- Gather user counts per class: Break down your projected S/4HANA users into Advanced, Core, and Self-Service categories (or their equivalents). Accurate counts by role are the foundation for any cost calculation.
- Compute total FUE demand: Use the FUE formula – Advanced + (Core ÷ 5) + (Self-Service ÷ 30) – to calculate your Total FUE. This quantifies your user license requirement in a single metric.
- Model multiple cost scenarios: Calculate the expected licensing cost under at least three scenarios: all-perpetual licensing (plus maintenance), all-subscription (RISE or S/4HANA Cloud), and a hybrid mix. Use the formulas from the examples (e.g., FUE × price per FUE, adding support or subscription fees) to forecast multi-year costs for each scenario.
- Incorporate all cost factors: Include ongoing support (for perpetual licenses), one-time migration or conversion fees, any SAP conversion credits, and digital access costs for indirect use. This comprehensive view ensures that no hidden costs are overlooked in your ECC to S/4HANA cost calculation.
- Use data to drive decisions: Leverage these cost models in negotiations with SAP and internal budgeting discussions. Identify the scenario that aligns best with your financial strategy (CapEx vs. OpEx) and risk profile. For instance, if subscription is cheaper over 5 years, use that as leverage; if not, plan for a longer-term ownership model. The data will help you optimize your contract and confidently manage S/4HANA licensing costs post-migration.
By following this action plan, executives can gain clarity on their S/4HANA license spend and make informed decisions to control post-migration costs. The result is a financially optimized S/4HANA landscape, with the right balance of upfront investment and ongoing expense to support your business in 2025 and beyond.
