SAP Cloud Licensing Agreements (RISE & SaaS)
Executive Summary:
This article advises CIOs and procurement heads on managing SAP cloud licensing agreements, focusing on RISE with SAP and other SaaS subscriptions.
It explains how cloud contracts differ from traditional on-premise deals and outlines strategies for maintaining flexibility and avoiding cost overruns.
In short, readers learn how to negotiate RISE and SAP SaaS terms that provide predictable costs, scalability, and protection against common pitfalls in cloud agreements.
Read Critical Clauses in SAP License Agreements: Audit, Indirect Use, and Price Protections.
The Shift to Cloud: New Licensing, New Risks
SAP’s push to cloud offerings like S/4HANA Cloud (via RISE with SAP) and various SaaS products (SuccessFactors, Ariba, Concur, etc.) means enterprises are signing new agreements.
Unlike perpetual on-prem licenses, cloud contracts are subscription-based and bundle software, infrastructure, and support into one fee.
Key differences that CIOs need to account for:
- Term Commitments: Cloud deals are typically 3-5 year commitments. You pay annually or quarterly. You do not own the software; rights end if you stop paying. This introduces lock-in risk if not managed—once migrated, switching is hard.
- All-in-One Bundles: RISE with SAP packages ERP software, hosting (often on hyperscalers), and basic support in one price. This simplifies procurement but can obscure cost breakdowns. Since you’re buying a bundle, negotiating flexibility to adjust components (like reducing users or storage) is crucial.
- Usage Metrics: Many SAP cloud services have metrics—e.g., SuccessFactors is licensed per employee, Ariba by spend or documents, and SAP BTP by consumption credits. The contract must spell out these metrics and allowances to avoid overage charges.
- Continuous Compliance: In the cloud, audits don’t wait—usage is monitored continuously. If you exceed entitlements (users, transactions, etc.), SAP can require purchasing more immediately or by renewal. Thus, having a buffer and clear terms on how overages are handled (especially unintentional ones) is key.
- Data Residency and SLAs: Cloud agreements include service availability (uptime) and data location commitments. It’s not a direct cost issue, but CIOs must ensure the contract meets their regulatory and performance needs (e.g., data in the EU, uptime penalties if SLA is not met).
In summary, SAP cloud licensing brings convenience but demands careful contract planning to maintain control and cost predictability.
Read Negotiating SAP License Agreement: Strategies for CIOs to Cut Costs and Risk.
Negotiating RISE with SAP: Key Considerations
RISE with SAP is a flagship offering for moving to S/4HANA in the cloud. It’s essentially SAP’s all-inclusive cloud ERP subscription.
When negotiating a RISE contract, focus on:
- Right-Sizing the FUEs: RISE uses Full User Equivalents (FUEs) as the unit to measure users. You contract for several FUEs corresponding to a mix of user types (e.g., 1 Professional = 1 FUE, 1 Light user = 0.2 FUE, etc.). It’s critical to estimate your needs accurately. Don’t overcommit to more FUEs than necessary; plan for growth. Negotiate for the ability to true-down or adjust FUE counts yearly in case you overestimated. For example, try to include a clause allowing a reduction of FUEs (or at least repurposing of them) if actual user counts are lower than expected after year 1.
- Included Components and Flexibility: Clarify what exactly is included in your RISE subscription: which SAP modules (S/4HANA functional scope), how many sandbox or dev/test systems, how much storage and memory, any SAP BTP (Business Technology Platform) credits, etc. If you foresee needing more of something (say, additional test systems or extra storage), negotiate it upfront at a favorable rate. Also, ensure the contract allows you to swap certain capabilities – for instance, if you later want to use a different SAP cloud service, can you apply some of your RISE fees toward it? RISE is somewhat inflexible by nature, but enterprise customers can negotiate customizations.
- Exit and Transition Terms: While you plan to stay with SAP, always have an exit strategy. Ask for data extraction rights – e.g., you want assurance of assistance to get your data and integrations out if you leave RISE. Also, clarify what happens if you bring your SAP back on-prem or to a different cloud (BYOL). Even if unlikely, having terms that facilitate a transition (like a transition services period or conversion of subscription to perpetual licenses if possible) provides leverage.
- Baseline vs Actual Usage Reviews: RISE contracts might include periodic usage reviews (users, digital access documents, etc.). Ensure you have a say in those reviews. For example, any increase in subscription due to growth should be mutually agreed upon, not automatic. If your business contracted 100 FUEs and grows to need 120, negotiate how that is handled – perhaps lock pricing for additional FUEs at the same rate or get tiered discounts as volumes rise. Avoid punitive overage charges; opt for a pre-agreed rate card for expansions.
Real-world note: One company negotiating RISE got a clause that if its employee count dropped by >15%, it could reduce its FUE subscription at renewal, providing a safety valve in a downturn. This kind of flexibility is worth pursuing.
SaaS Metrics and Overage Protections
For SAP’s other cloud offerings (SuccessFactors, Ariba, Concur, Fieldglass, etc.), each has unique licensing metrics.
When crafting these agreements:
- Define the Metric in Detail: If SuccessFactors is “per employee, ” are active employees per year? Full-time equivalents? If Concur is per report or per user, what counts as a chargeable unit? Nail down these definitions. Ambiguity can lead to disputes or surprise bills. If possible, have examples in the contract (e.g., “an ‘employee’ for licensing is defined as an active employee with a unique login in the system during 12 months”).
- Initial Allocation vs Actuals: Typically, you buy a certain volume (say 5,000 employees for SuccessFactors). Include an allowance or buffer if you can. For example, sometimes SAP might allow +5% users without immediate charge to be true up at renewal. If not offered, consider slightly over-procuring at negotiation time if the unit price is low to avoid expensive overages mid-term. It can be cheaper to buy an extra 10% capacity at a discount upfront than to pay list price if you exceed later.
- Overage Charges and True-Up Terms: The contract should state what happens if you exceed the licensed metric. Ideally, negotiate that any overage is handled at the same per-unit price as your initial purchase (or with the same discount). Avoid situations where excess usage triggers a higher price. Also, push for the ability to true-up at renewal time rather than immediately, allowing you to reconcile once yearly. For instance, if you go 10% over your Ariba spending limit, you’d purchase the extra at renewal, not get a surprise invoice when you cross the line.
- Right to Reduce for Decline: Conversely, if your usage drops (e.g., you have fewer employees next year), try to include a right-size clause. Some cloud contracts allow a downward adjustment at renewal of perhaps 10-15% without penalty. Even if SAP resists, it proposes that you expect fairness in both directions. Sometimes, SAP might offer a one-time “reset” if you massively overestimated initially – having language to revisit baseline usage after year 1 could be useful.
Ensuring Performance and Availability (SLAs)
Cost control isn’t just about fees – if the service is down or underperforms, it costs your business. SAP cloud agreements come with Service Level Agreements (SLAs). Key points:
- Uptime Guarantees: Check the SLA (often 99.5% or 99.7% uptime for many SAP cloud services). Make sure it’s acceptable for your operations. If not, you might negotiate a higher SLA or at least know the credit policy. Usually, if SAP fails SLA, you get a service credit (a percentage of the monthly fee). While you can’t easily get cash back, ensure the contract has meaningful downtime credits beyond SLA.
- Support Response Times: Cloud contracts detail support levels. If you’re used to SAP MaxAttention or high-touch support, ensure your cloud agreement provides the needed responsiveness. Sometimes, standard cloud support can be slower—if unacceptable, discuss premium support options or embed certain support commitments in the contract.
- Data Location & Security: For compliance, if you need data in certain jurisdictions (EU GDPR concerns, etc.), the contract or data processing agreement should reflect that. This may not affect cost directly, but if not addressed, you could incur costs later moving to a different data center. Clarify upfront if your instance will be in Germany, the US, or Singapore, depending on your needs, and include that in the documentation.
- Renewal Flexibility Based on SLA: In rare cases, large customers negotiate rights to terminate if SLAs are consistently missed. Even if you can’t get that, consider a clause that if SLA breaches happen 3 quarters in a row, you can exit or get a hefty credit. It’s a tough ask, but it underscores how critical uptime is for you.
Total Cost of Ownership in Cloud Deals
Companies choose RISE or SAP SaaS to simplify costs – one subscription instead of multiple components.
To ensure the promised TCO benefits:
- Transparency in Fees: Request a breakdown of the subscription fee (even if just for internal understanding). For instance, how much is for infrastructure vs. software vs. support? This helps later if you consider taking over some part (like infrastructure) on your own. You want to see that you’re not grossly overpaying for hosting or extras.
- Future Growth Pricing: If you expect significant growth (more users, more transactions), negotiate price locks for additional units now. For example, “additional SuccessFactors users can be added at $X per user for the agreement term.” This avoids the scenario where you expand and SAP quotes a much higher price for the new tranche.
- Evaluate Long-Term Costs: Model out 5-10 year costs: sometimes RISE (OpEx model) seems cheaper for the first few years, but it might cost more over a decade than on-prem + maintenance. Use that analysis during negotiation to ask for better terms. For example, if year 5+ becomes expensive, maybe negotiate an option to convert to a perpetual model or a significant loyalty discount if you renew beyond the initial term. Let SAP know you’ve done the math; they may offer a longer-term commitment with flat pricing to ensure you don’t drop out later.
- Avoid Shelfware (Cloud Edition): It sounds odd, but you can still have “shelfware” in cloud – buying more subscriptions than you use. Regularly review the utilization of your cloud licenses. If you’re consistently using far less (e.g., only 70% of your subscribed Ariba spend), bring this up and attempt to adjust the contract downwards at renewal. Renegotiating a lower base (even if it means a fresh 3-year term) is better than paying for unused capacity. In negotiations, show usage reports to justify reductions.
A quick pricing example: A typical SAP SuccessFactors Employee Central license might be $20 per employee per year (just an illustrative figure). If you have 10,000 employees, that’s $200k/year. If your workforce drops to 8,000 but you’re still contracted for 10k, you’re overpaying $40k/year. Thus, having a provision to adjust to 8,000 at renewal keeps you from overspending. Always connect these numbers to your negotiations to make a compelling case.
Recommendations
- Get Metrics in Writing: Ensure every cloud metric (user, employee, document, etc.) is clearly defined in the contract. Don’t rely on assumptions – ambiguous terms always favor the vendor.
- Negotiate Scaling Terms: Push for the ability to scale up or down. You want rights to increase usage at locked unit prices and ideally reduce scope if business shrinks (at least at renewal).
- Lock Long-Term Pricing: Where possible, secure multi-year price protections for cloud subscriptions via caps or fixed rates for a renewal term if you commit now. This shields you from the dreaded post-term price spike.
- Include Buffer Capacity: Avoid instant overage charges by negotiating a small buffer (e.g., 5-10% excess use allowance) or proactively oversizing a bit at a discount. This costs less than paying penalties later.
- Review Bundled Deals Carefully: In RISE bundles, itemize what you’re getting. If you don’t need certain components, see if removing them lowers the cost. Conversely, ensure everything you need is included so SAP can’t upsell you later for a missing piece.
- Plan Exit Strategies: As optimistic as cloud deals appear, include data retrieval and transition assistance terms. Knowing you can leave gracefully ironically gives you more leverage to stay (and negotiate better terms while at it).
- Monitor Usage Continuously: Treat cloud usage tracking as a monthly task. Many SAP cloud admin portals show license consumption. Use this data to forecast if you’ll bust limits and address it before it becomes a contract breach.
- Align Contract End Dates: If you have multiple SAP cloud products, try co-terming them, aligning renewal dates. A unified renewal negotiation for all SAP SaaS gives you a bigger budget to leverage volume discounts or concessions.
- SLA and Performance Clauses Matter: Don’t ignore the service levels. Negotiate for what your business needs in uptime and ensure meaningful credits or remedies if SAP falls short. A reliable service prevents the indirect costs of downtime.
- Engage Stakeholders: Bring HR, procurement, or others who will use these SaaS products to verify licensing assumptions. For example, HR can validate SuccessFactors’ employee count and growth projections, ensuring you contract for the right number from the start.
FAQ
Q1: How is RISE with SAP different from just running SAP on Azure/AWS?
A: RISE with SAP is a subscription where SAP acts as your cloud provider and one-stop shop. You pay SAP a single fee that covers S/4HANA software, hosting (often on Azure/AWS behind the scenes, but managed by SAP), and support. If you instead run SAP on Azure yourself (Bring Your Own License), you would purchase licenses (CapEx) and then pay Azure separately, managing more independently. RISE simplifies that, but can be less flexible (SAP owns the environment). Contractually, RISE is an SAP Cloud Subscription Agreement, whereas BYOL on Azure means a traditional license + a cloud infrastructure contract separately.
Q2: Can I negotiate the breakdown of a RISE deal?
A: Up to a point. SAP doesn’t publicly break out software vs infrastructure in RISE pricing. However, you can negotiate the overall price based on those components. For example, get quotes for infrastructure independently as a benchmark. In talks, say, “We estimate the hosting portion is X, which seems high; can we optimize it or allocate more of the budget to critical support instead?” Some customers have successfully gotten additional services (like extra sandbox systems or more BTP credits) included at no extra charge by showing that the bundle price leaves room. While you may not get an official itemized invoice, negotiating with component costs in mind is wise.
Q3: What happens if we add more users in the middle of a cloud contract?
A: Typically, you inform SAP and sign an add-on order for the additional users, prorated for the remaining term. The price of those users should ideally be at the same per-user rate as your original contract (this is something to ensure during negotiation). If you suddenly double your users without an add-on order, you’ll likely be out of compliance, but since it’s cloud, SAP will notice. It’s better to formalize expansions promptly. Negotiating an upfront rate card (e.g.,$ per user) in the contract saves time and haggling later.
Q4: We have seasonal variability in usage – can cloud contracts accommodate that?
A: Pure SaaS contracts usually require a steady number (you contract for peak). But you might negotiate some flexibility. For instance, if you use 1000 Ariba procurement users most of the year and 1200 for end-of-year surge, ask if you can average usage or temporarily burst. SAP might offer a model where you can exceed by X% for Y months as long as the annual average is within your license count, or they might suggest a shorter-term license add-on for those months. It’s not standard, but it’s worth exploring if you have data to show seasonality. Another approach is a tiered license where the extra 200 users are on a 3-month license instead of a full year.
Q5: Are there any special clauses for RISE about S/4HANA licenses we previously owned?
A: If you already have on-premise SAP licenses and move to RISE, SAP often provides a conversion credit for your existing investment. Essentially, you give up (or park) your old licenses as you transition to the subscription. Ensure the agreement documents this credit, which is usually a discount on the RISE subscription or a waiver of some fees. Also, clarify if those old licenses can be reactivated if you exit RISE (generally, once converted, you can’t use them independently, but SAP may allow reactivation if RISE is terminated – a detail to verify). This is important so you don’t feel you’ve paid twice for the same software.
Q6: How can I protect my company from future cost increases in RISE?
A: Negotiate a long-term pricing structure. For example, a 5-year contract where years 1-3 are fixed price, year 4 may have a small step-up, and year 5 another small step-up (or all 5 years fixed). Also, include a renewal cap for the term after that. With RISE, because it’s relatively new, SAP has been somewhat amenable to locking in multi-year deals to encourage adoption. Use that – commit to a longer term in exchange for price certainty. Additionally, try to incorporate a clause that if SAP significantly lowers prices or changes the RISE model for new customers, you can renegotiate to adopt those improvements. It’s uncommon, but some large customers have “Most Favored Customer” type language to ensure they’re not disadvantaged if market prices drop.
Q7: We use several SAP cloud products – should we consolidate them into one agreement?
A: Coordinating their terms can help. You don’t necessarily merge SuccessFactors and Ariba into one contract (they often remain separate), but you can align end dates and negotiate them together. SAP sometimes offers an Enterprise Agreement that bundles multiple cloud products with a combined spend commitment. This can yield a better discount and a single master contract. However, be cautious: only bundle if you need all the included products, to avoid paying for unused portions. Bundling is beneficial if it simplifies management, improves discounts, and clarifies each product’s usage terms.
Q8: What if a new SAP cloud service comes out that we want to adopt? Can that be added easily?
A: If you anticipate potentially adding, for example, SAP Analytics Cloud or a new IoT service down the line, discuss upfront. You might negotiate an add-on framework: a prenegotiated discount rate or the ability to co-term new SAP cloud products with your existing agreement. Some customers set a “rate card” for additional SAP Cloud services, essentially locking in a discount level for new subscriptions purchased during the term. Adding new services is usually straightforward under that umbrella if you have an SAP Enterprise Agreement. Without one, you’ll just do a new order form, but you could still leverage the existing relationship to get a consistent discount.
Q9: How do SAP cloud contracts handle data privacy regulations (like GDPR)?
A: Typically via a Data Processing Agreement (DPA) attached to the contract. Ensure that SAP’s standard DPA meets your needs – it should stipulate that SAP, as a processor, will abide by GDPR, etc., and mention where data will be stored. If you need data domicile (e.g., all data in EU datacenters), ensure it’s reflected either in the DPA or the contract. SAP’s cloud usually allows you to select a region for your instance. Ensure that’s documented (e.g, “Customer’s instance of SuccessFactors will be hosted in EU-West data center”). Also, confirm the contract lets you conduct audits or obtain certifications of SAP’s compliance if required by your internal policies.
Q10: Do we have any recourse if we are unhappy mid-term with a cloud service (say, performance issues)?
A: Unlike on-prem, you can’t stop paying without losing the service. However, your leverage and SLA credits are in escalation. Work the SAP support and account management channels aggressively. If SLA breaches occur, claim your credits. For severe issues, engage your legal team to remind SAP of its obligations – sometimes a strongly worded notice citing breach of contract (if, for example, uptime consistently fails) can motivate SAP to provide additional resources or even allow an early termination negotiation. It’s rare to terminate early, but you could negotiate an exit if things are bad, possibly paying a penalty or having a portion of the fees refunded. Your best bet is to ensure the contract has good SLA language and then hold SAP to it, with the prospect of reputational damage encouraging them to fix issues fast rather than face a standoff with a major customer.
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