SAP License Migrations
As organizations move from legacy SAP ERP systems to modern solutions like S/4HANA or cloud offerings, they face SAP license migrations, which involve transitioning existing licenses and contracts to new models.
This article guides CIOs through the different paths for SAP license migration (product conversion, contract conversion, and cloud subscription/RISE) and highlights their differences.
It also outlines enterprises’ challenges (e.g., preserving investment value, dealing with new license metrics) and provides strategies to minimize costs and risks during migration. CIOS must align SAP licensing with future-state architecture while avoiding unexpected expenses.
The Push to Migrate SAP Licenses
SAP will end mainstream support for its legacy Business Suite (SAP ECC) in 2027, motivating many customers to migrate to SAP S/4HANA, the next-generation ERP.
Beyond the technical upgrade, there is a licensing transformation: S/4HANA is treated as a new product line with a different licensing structure.
Companies that spent millions on SAP ECC licenses are understandably concerned about protecting that investment.
SAP has assured that customers won’t have to pay twice for the same functionality, but to formalize that, customers must go through a license migration or conversion process.
Moving to S/4HANA or to SAP’s cloud (for example, the RISE with SAP program) often requires renegotiating your SAP contract.
You can’t simply carry over your old licenses because S/4HANA has new license SKUs, updated user definitions, and often a shift toward subscription models.
The good news is that SAP offers programs to credit the value of your existing licenses toward the new ones. The not-so-good news: those programs have timelines and diminishing incentives, meaning CIOs must plan license migrations carefully and early.
SAP License Conversion Options
For on-premise SAP customers transitioning to S/4HANA, SAP traditionally provided two main conversion routes, plus a cloud migration option:
- Product Conversion: This approach allowed a line-by-line conversion of your current licenses to S/4HANA equivalents. It was akin to exchanging specific licenses for their S/4 versions (for example, converting an SAP ERP Financials engine or user license into the S/4HANA Finance component). Product conversion lets you migrate in phases – you could convert some parts of your contract to S/4 while leaving others (and the associated ECC licenses) in place until later. Importantly, your existing contract structure and discounts are largely carried forward under product conversion. However, as of 2023, SAP removed the primary product conversion SKU (“SAP S/4HANA Enterprise Management for ERP customers”) from its price list. This means new S/4 licenses can no longer be acquired via a simple product conversion unless you have already purchased that special S/4 bridging license beforehand. In short, product conversion is mostly off the table for those who didn’t act early.
- Contract Conversion: In this route, you essentially rip-and-replace your SAP contract. You terminate or sunset your old ECC license agreements and purchase a new set of licenses for S/4HANA. SAP calculates a credit for the unused portion of your existing licenses’ value to offset the cost of the new licenses. Initially, SAP’s policy was quite generous – up to 90% of your new S/4 license spend could be offset by the value of your returned licenses (subject to certain conditions). However, these terms have become less favorable over time: recently, SAP has lowered the credit to around 70-80%, and they’ve indicated the credit percentage will drop further each year. Contract conversion forces a clean slate and lets you restructure your licensing completely (often simplifying it), which can be beneficial if your legacy contract was overly complex or included shelfware. However, it requires careful analysis: you must ensure the new licenses cover all critical functionality and maximize the credit for what you give up.
- Migrating to Cloud (RISE with SAP): SAP is strongly promoting its RISE with SAP offering – essentially a subscription bundle that includes S/4HANA software, cloud infrastructure, and other services under one contract. If you migrate to S/4HANA Cloud (private or public edition) via RISE, the licensing model shifts from perpetual licenses + annual maintenance to a subscription (term-based) model. In an RISE migration, you negotiate a subscription fee that factors into your current license investments instead of converting license line items. SAP still typically provides credits or incentives for your existing licenses (for example, some customers get a reduced subscription price for a couple of years, reflecting past investments). Still, the mechanics are less direct than on-premise conversions. RISE can attract CIOs looking to move to an OPEX model and hand off infrastructure responsibility. Still, it also means ceding some control, and it effectively resets your licensing to an all-new contract.
Each option has pros and cons. Product conversion (when it was available) was the least disruptive and protected historic discounts, but it is now largely discontinued. Contract conversion gives a fresh start and often a simpler license portfolio, but you must ensure you’re not losing value in the conversion.
RISE/Cloud migration aligns with a strategic cloud-first direction and may offer short-term financial sweeteners. However, one has to be comfortable with subscription and cloud terms (which can include different metrics like consumption or user bands, and the need to renew the contract periodically).
Challenges in License Migration Projects
Migrating SAP licenses is complex and can be nearly as challenging as the technical migration. One big challenge is valuing existing licenses: How much credit will you get for your current licenses?
This can be a point of contention. SAP calculates credits based on your maintenance base (the maintenance-paying license cost) and the new license purchase. As noted, SAP has been tightening these terms.
For example, if you delay contract conversion until closer to 2027, you might only get credit for 50-60% of your original investment (because the allowable credit percentage drops year by year). This creates urgency – companies procrastinating may leave much money on the table.
Another challenge is ensuring functional coverage in the new environment. S/4HANA isn’t a one-to-one match with ECC; some modules are merged, others are split, and new ones exist. When converting licenses, you have to map old products to new ones.
It’s possible to accidentally drop a minor component that turns out to be important. For instance, you might convert your ERP licenses to S/4 Enterprise licenses, but did you also get the equivalent of that niche module your HR team was using?
If not, you could face new license purchases later because something was missed. Meticulous mapping and involving functional owners are necessary to avoid gaps.
Running dual environments during migration is another consideration. Typically, you might run ECC and S/4HANA in parallel for some period (during testing, phased rollouts, etc.).
In that interim, you must ensure your licensing covers both systems. SAP generally allows some leeway for this scenario (for example, your S/4 contract may permit continued ECC use for migration purposes), but the agreement needs to be spelled out.
CIOs should negotiate transition rights—the ability to continue using the old system for a defined time without paying duplicate licenses. This might also cover scenarios like fallback rights (e.g., if the S/4 project is delayed, can you extend ECC use?).
There are also organizational challenges. License migration often involves internal politics and budgeting: the funds for new licenses, the accounting treatment of retiring assets, etc. Procurement and IT asset managers should collaborate closely.
Moreover, an SAP license migration is an opportunity to clean house: retire unused users or modules (shelfware) instead of converting them.
However, identifying what’s truly needed going forward requires good data on current usage and future plans, which can be hard to assemble under time pressure.
Finally, the negotiation itself can be a challenge. SAP sales representatives have targets and may push certain options (like RISE or contract conversion) more aggressively. Enterprises can feel pressured to make a quick decision due to end-of-quarter or looming policy changes.
It’s important not to rush, even though there is a ticking clock with incentive reductions; any new S/4 contract will lock in your costs for years.
Engaging expert licensing advisors or benchmarking offers against industry peers can help ensure you get a fair deal in the migration.
Best Practices for a Smooth License Migration
To navigate these challenges, organizations should approach SAP license migration as a project in its own right. Start with a thorough inventory and usage analysis. Catalog all your existing SAP licenses: how many of each type, what you’re paying in maintenance, and which are heavily used vs. which might be shelfware.
Also, project your future needs—moving to S/4HANA could introduce new functionalities (e.g., embedded analytics) that you’ll want licenses for, or you might not need certain old components anymore (e.g., if you plan to use third-party software for some functions).
Once you have a clear picture, engage SAP (and possibly third-party experts) in discussing conversion options and offers.
Ask SAP for a license conversion proposal: “If we convert now, what would our new S/4 license entitlement look like, and what credits would we get?” Do this early; it gives you a baseline to evaluate. If that first offer isn’t favorable, you have time to negotiate or consider alternatives (like a phased approach or exploring a competitive angle with third-party support to buy time).
Timing is critical:
Given SAP’s decreasing credit incentives, many companies migrate licenses sooner rather than later. If your organization knows it will move to S/4HANA, there’s a financial argument for doing the license conversion well before 2027 to lock in higher credits.
Some enterprises even convert licenses to S/4 before the technical migration is completed – essentially holding S/4 licenses while still running ECC, to take advantage of a better deal. This can work as long as you coordinate the maintenance (you might be paying maintenance on both ECC and new S/4 licenses during the overlap).
During negotiations, focus on the total cost of ownership over the migration period. That includes the costs of new licenses, any one-time fees, and the ongoing maintenance or subscription.
If doing contract conversion, try to maximize the credit for your legacy licenses: demonstrate which ones are unused to potentially remove them, and push for the highest offset SAP will allow.
Also, clarify how maintenance on the new licenses will compare to your old maintenance (with a brand new contract, maintenance is typically 22% of net license price – if you got a heavy discount on the new licenses, ensure that’s the figure used, not list price).
It’s also a best practice to secure protections in the new contract.
For example, include language: if you divest part of your business or undergo reorganization, you can reallocate the new licenses accordingly (so you’re not stuck with excess).
If you are migrating in phases, include the ability to true-down some licenses after each phase if they’re no longer needed. Essentially, build as much flexibility as you can into what is often a long-term agreement.
Recommendations
- Start Early with a License Audit: Don’t wait until the last minute. Begin your S/4HANA licensing impact analysis now. Inventory all current SAP licenses and their usage to identify what you need moving forward.
- Evaluate All Paths: Request formal proposals or quotes for contract conversion and (if applicable) any product conversion or RISE subscription options. Compare the financials and risk of each approach side by side.
- Maximize Value of Existing Licenses: During conversion negotiations, aim to get the highest possible credit for your existing investments. This may involve dropping unused licenses (shelfware) from your contract now so they can be credited and making the conversion before SAP reduces the credit percentages further.
- Negotiate Transition Rights: Ensure your migration plan is reflected in the contract. Get written rights to run ECC and S/4HANA concurrently for a reasonable period, and any fallback provisions needed. This avoids having to pay extra if the project timeline overlaps or extends.
- Involve Stakeholders: Include your procurement, ITAM, and functional department leads. They can help verify that the new licenses cover all required functionality and that nothing essential is lost in translation.
- Consider External Expertise: If you’re unsure about SAP’s offer, consult with SAP licensing experts or use benchmarks (from user groups or RFI/RFP processes). They can often identify negotiation levers or alternative structures to save costs.
- Document Everything: When you migrate licenses, keep a clear record of how the new entitlements map to the old ones. This will help operational teams understand the new rules and help with any future audit or true-up to show that you converted in good faith according to the agreement.
- Monitor Policy Changes: SAP’s conversion programs and incentives can change (as seen with sudden credit reductions). Keep an eye on SAP announcements or consult your SAP account manager regularly, so you’re aware of any “last chance” offers or upcoming changes that might affect your migration strategy.
Read about our SAP License Optimization Service.
