SAP License Renewal: How to Save Costs
Executive Summary: SAP license renewal is a high-stakes event for enterprise IT budgets. With careful preparation and smart negotiation, CIOs, CFOs, and procurement leaders can significantly reduce costs while ensuring compliance.
This advisory outlines how to audit current SAP usage, eliminate waste, and leverage contract renewal as an opportunity to optimize spending and even fund future initiatives.
Audit Your SAP Usage and Eliminate Shelfware
Before discussing any SAP license renewal, thoroughly audit your current usage.
Often, companies discover that they are paying for licenses that are not being used – a phenomenon known as shelfware.
Identifying and addressing this is the fastest way to save costs:
- Inventory All Users and Modules: Run SAP’s license measurement reports (e.g,. USMM and LAW) to get a clear picture of active users and usage of each software component. This reveals if you have more named user licenses or module capacity than needed.
- Identify Unused Licenses: Look for employees who have left or changed roles and no longer log into SAP, as well as any modules or add-ons you purchased but never fully implemented. These idle licenses continue to accrue annual support fees until they are removed.
- Reassign or Retire Excess Licenses: Once you pinpoint unused licenses, reclaim them. For user licenses, deactivate or reallocate them to others if possible. For completely unused products, plan to terminate those licenses or negotiate their removal at the time of renewal. This halts the ongoing maintenance “tax” on shelfware.
- Right-Size License Types: Check that each user has the appropriate license type. You may be paying for expensive Professional user licenses for people who only need self-service access. Downgrading heavy licenses to lower tiers, where appropriate, can reduce costs without compromising functionality.
Real-World Example: A global manufacturer discovered that it was paying $5 million annually in support fees for approximately $10 million worth of unused SAP licenses.
By proactively identifying this shelfware and negotiating its removal during renewal, they freed up that budget for more strategic projects.
In general, every $1 million in unused licenses can cost about $200,000 per year in maintenance – a waste that can be eliminated with a diligent audit.
Read Avoiding SAP License Renewal Pitfalls: Common Mistakes and How to Prevent Them.
Cost Impact of Shelfware:
The table below illustrates how maintenance on unused licenses accumulates over time, often exceeding the original license cost:
| Unused License Value | Annual Support Fee (22%) | Cost Over 5 Years (cumulative) |
|---|---|---|
| $1,000,000 | $220,000 | $1,100,000 (110% of original value) |
| $500,000 | $110,000 | $550,000 (110% of original value) |
Table: Paying 22% yearly support means an unused $1M license costs $1.1M in fees over 5 years. Eliminating such shelfware before your SAP license renewal directly translates into immediate savings.
Start Early and Plan Your Renewal Strategy
A successful SAP license renewal that saves costs begins long before the contract’s end date.
Top enterprises treat renewals as a project, starting 6–12 months in advance to set objectives and line up their negotiation leverage.
- Define Future Needs: Project your SAP requirements for the next 3-5 years. Will you need additional users or new modules? Are you planning a move to SAP S/4HANA or new cloud services? Knowing this upfront prevents overbuying “just in case” and lets you negotiate for only what you truly need (with options to grow later).
- Engage Stakeholders Early: Form a cross-functional team (IT, procurement, finance, and legal) to review current contracts and usage. Align on goals: for example, reducing cost by a certain percentage, dropping obsolete components, or securing new capabilities within the same budget. A united internal stance ensures you won’t be divided by sales tactics.
- Research and Benchmark: Gather intelligence on SAP’s pricing trends and peer benchmarks. Understand typical discount levels for customers of your size and spend – large enterprises often secure 50% or more off the list price on new licenses. If possible, obtain quotes from alternative solutions or third-party support providers discreetly. Knowing that, say, a third-party can support SAP for half the maintenance cost or that a competitor’s software is cheaper gives you credible leverage in talks.
- Time the Conversation: Inform SAP’s account team that you are evaluating your renewal options (ideally, 6+ months in advance). Obtaining an initial quote early can reveal SAP’s opening offer and leave ample time to negotiate. Vendors are often more flexible when they know you’re planning – and if your renewal coincides with SAP’s quarter or year-end, their eagerness to close deals can work to your advantage.
Starting the renewal process early turns a last-minute scramble into a controlled negotiation on your timeline. It allows you to methodically shape the deal and avoid agreeing to unfavorable terms under deadline pressure.
Negotiate for Discounts and Flexible Terms
When it comes to the negotiation table, every aspect of the SAP renewal is negotiable – not just price, but also contract terms that can lock in future savings.
Approach the renewal as an opportunity to realign your contract with your current needs and budget constraints.
- Aim for Significant Discounts: Don’t Accept SAP’s First Offer. It’s common to negotiate substantial discounts on license purchases, especially if you’re expanding your footprint or adopting new products. Enter discussions with a target discount in mind (e.g., “we need at least 30–50% off list”). Back your ask with data from past deals or industry benchmarks. SAP expects savvy customers to negotiate – even a modest discount increase can result in millions of dollars saved on a large renewal.
- Bundle and Trade-Offs: Leverage any planned new investments as bargaining chips to maximize benefits. For example, if you are considering purchasing additional SAP modules or cloud services, use that as leverage to negotiate better pricing on the renewal as a whole. Conversely, if you have unused licenses from earlier deals, consider trading them in for credit toward what you need now. SAP may not refund money, but they often will apply the value of unused software towards new products (especially if you show willingness to explore their cloud offerings).
- Lock in Future Protections: Secure terms that safeguard against future cost increases. This can include price holds (fixed pricing for additional licenses for a few years, allowing you to grow without incurring the full list price later) and caps on maintenance fee increases. For instance, try to restrict annual support hikes to a maximum of CPI or a fixed percentage. Additionally, negotiate flexibility to swap license types or transfer licenses to a new SAP product (such as S/4HANA) without incurring hefty penalties – this provides you with agility as your business evolves.
- Contract Length and Commitments: Determine the right contract duration and commitments. A longer commitment might fetch a bigger discount, but avoid locking in terms that are too rigid. Ensure you have an exit strategy or checkpoints. If you agree to a multi-year subscription or cloud deal, clarify the renewal options at the end of the term to prevent sudden cost increases. It’s reasonable to ask for renewal price caps or the ability to adjust user counts periodically in line with actual usage.
During negotiation, maintain a collaborative but firm stance. Be clear on your must-haves (e.g., “We must reduce overall SAP spend by 20%” or “We need rights to reallocate licenses globally”).
At the same time, demonstrate to SAP that you are seeking a win-win: you want to remain a customer, but on terms that make financial sense.
This balanced approach often yields both a better price and more flexible conditions.
Factor In ECC vs. S/4HANA and Cloud Options
Your SAP roadmap – especially any transition from legacy SAP ECC to SAP S/4HANA or cloud services – should directly inform your renewal strategy.
SAP license renewals are a prime time to reassess your platform and potentially save costs by taking advantage of SAP’s incentive programs:
- Evaluate Conversion Programs: If you’re still on SAP ECC (the older ERP system) and plan to move to S/4HANA shortly, discuss SAP’s license conversion options. SAP often allows customers to convert existing ECC licenses to S/4HANA licenses at no additional license cost, as you’ve already paid for the software. However, the devil is in the details – maintenance fees after conversion may change. Negotiate how your support costs will be recalculated to avoid an unexpected increase in costs. A well-negotiated conversion can enable you to adopt S/4HANA without a significant increase in annual fees.
- Consider RISE or Cloud Subscriptions Carefully: SAP is heavily promoting “RISE with SAP” and other cloud subscription models. These can simplify costs (one subscription fee instead of separate license + maintenance), but they can also be pricier over the long term if not negotiated well. If you’re considering a move to the cloud, use the renewal opportunity to compare scenarios: continuing on-premises (with rising maintenance costs) vs. moving to a cloud subscription. SAP may offer significant discounts or cloud credits to entice you. Ensure any cloud deal includes price protections after the initial term so you don’t face a steep renewal uplift in 3–5 years.
- Mind the ECC Support Deadline: SAP’s mainstream support for ECC lasts until 2027 (with optional extended maintenance through 2030 for an extra premium). This looming deadline means if you’re renewing an ECC-centric contract, you need a plan. Either negotiate transitional terms (like the right to extend support or flexibility to switch to S/4HANA later), or be prepared to budget for higher support costs after 2027. Some enterprises use this as leverage: SAP might be more willing to cut a deal on S/4HANA licenses or a RISE subscription now, rather than risk the customer delaying migration or exploring other vendors when ECC support runs out.
- Avoid Dual Spending: If you do decide to adopt S/4HANA or a cloud solution during your renewal cycle, avoid paying twice for similar functionality. Negotiate credits for the value of any overlapping ECC licenses. For example, if you’re moving a chunk of users to an S/4HANA cloud, you might reduce your on-premise user count accordingly. The goal is not to be stuck funding both the old and new environments in parallel longer than necessary. Contractually plan a ramp-down of old licenses as new ones come online.
By aligning your renewal with your SAP product strategy, you can save costs and future-proof your investments.
Whether you double-down on your current system or embrace SAP’s newer offerings, use the renewal to ensure you’re getting the best financial terms for that path.
Manage Compliance Risks: Indirect Access and Audits
Unbudgeted costs often arise when SAP finds you’re using the software beyond what you’ve licensed – typically through “indirect access” or just normal growth.
A proactive stance on compliance during renewal negotiations can save you from nasty surprises:
- Assess Indirect Usage: Indirect access refers to third-party systems or external users that interact with SAP data (for example, a Salesforce system reading SAP customer information, or a web portal creating orders in SAP). In the past, SAP has charged steep fees if your licenses didn’t cover these scenarios. At renewal, review how your SAP is integrated with other systems. If you have significant indirect data flows, consider SAP’s Digital Access license model (which licenses such use by documents rather than requiring a named user for every external touch). You may now negotiate a package of Digital Access licenses, possibly at a discount, to preempt any potential audit claims later.
- True-Up on Your Terms: If your usage has grown (more users, higher transaction volumes, etc.), you might technically need to “true up” and buy additional licenses. Rather than waiting for SAP to catch this in an audit, address it during the renewal discussions. By coming forward with a need for extra licenses in specific areas, you can fold them into the deal – often at a far better price than if purchased reactively. For instance, if you know a merger increased your employee count by 10%, negotiate those extra user licenses now under the renewal’s discount, instead of paying full price after an audit.
- Negotiate Audit Clauses: Review the audit and compliance terms in your SAP contract carefully to ensure you understand them fully. While no vendor will drop their audit rights, you can seek reasonable limits (e.g., at most one audit per year with 90 days’ notice) and a clear dispute resolution process. If indirect access is a concern, push for clarity in the contract about what constitutes chargeable use. The more you clarify in writing, the less leverage SAP has to present an unexpected bill later.
- Leverage Compliance Resolutions for Savings: Sometimes SAP will offer to waive or reduce back-license fees for any compliance shortfall if you commit to a new purchase or an upgrade. If an audit has revealed some gaps, use the renewal to negotiate a settlement as part of the new contract (for example, SAP forgiving certain fees in exchange for a modest increase in your license volume or a migration to a new product). Turn a potential compliance cost into a structured, predictable agreement.
Staying ahead of compliance not only avoids penalties but can be part of your cost-saving strategy.
One enterprise, for example, realized a third-party system was causing indirect use exposure that could cost millions; they proactively negotiated a digital access license package at renewal for a fraction of that cost, eliminating the risk.
The key is to address these issues openly with SAP while you have negotiation leverage, rather than reactively under audit pressure.
Control Maintenance and Support Costs
Annual support fees (maintenance) often make up the largest portion of SAP’s cost of ownership – and these fees tend to rise over time.
Effective maintenance management is crucial for saving money in both the short and long term.
- Remove What You Don’t Need: As emphasized earlier, cutting shelfware is the most direct way to lower maintenance spend. SAP typically charges 20–22% of the license price every year for support. If you can’t fully terminate unused licenses, explore whether SAP will allow you to reduce your support scope. While SAP’s policy is usually all-or-nothing (you pay maintenance on all licenses you own), large customers have, in some cases, negotiated one-time reductions or carved out a separate contract for unused components to drop them from support.
- Negotiate Maintenance Rate and Escalation: Don’t overlook the support line item in your renewal. If you’re on Standard Support (usually ~22% of license cost) or Enterprise Support (a bit higher, but with additional services), those percentages might be negotiable for a big deal. For example, one company managed to cap its maintenance fee at 19% by signaling that it might switch to a third-party support provider. Additionally, insist on a cap for year-over-year maintenance increases – SAP has moved to index-linking support fees to inflation (with up to ~5% annual hike). Try to lock in a lower ceiling or even a flat maintenance fee for a few years to protect your budget.
- Consider Third-Party Support (Carefully): If SAP won’t budge on maintenance and you have a stable environment, third-party support firms offer a way to cut support costs by 50% or more. This can be an interim solution, especially for organizations that are delaying an S/4HANA migration and find SAP’s maintenance too expensive. However, be cautious: leaving SAP support means no new updates or fixes from SAP, and rejoining later can be costly (SAP may charge back-dated fees to reinstate support). If you entertain this route, use it as a negotiation lever (“We have this cheaper support option on the table…”) and, if you proceed, try to negotiate terms with SAP for an easier return in the future.
- Optimize Support Level: Ensure you’re not over-paying for support tiers you don’t need. Some older ECC contracts might still be on a basic Standard Support (which is slightly cheaper) while others are on Enterprise Support by default. If your contract moved you to a higher support level without a clear benefit, you could attempt to negotiate staying on the lower tier. Also, check if you are paying maintenance on outdated products that you plan to retire soon – you might consider timing their decommission to avoid renewing support on them.
Ultimately, treating maintenance as negotiable and actively managing support entitlements can yield significant savings.
Even a small percentage reduction in the support rate, or cutting a few unnecessary items, translates to big dollar savings every year. Given that support fees can compound with annual increases, any concessions you win here have a long-term payoff.
Recommendations (Expert Tips to Save on SAP Renewals)
1. Perform an Internal License Audit: Before engaging SAP, thoroughly audit your license usage. Use SAP’s tools or third-party analyses to map actual usage vs. entitlements – this uncovers immediate savings opportunities and ensures you know your compliance position.
2. Clean Up and Reallocate Licenses: Proactively clear out inactive user accounts and unused modules. Reassign licenses where possible to avoid new purchases. Enter negotiations with a clean baseline so you only renew what’s truly needed.
3. Start Renewal Talks Early: Give yourself at least 6-12 months lead time. Early engagement enables you to establish the agenda, obtain initial quotes, and refine your offers. Rushed last-minute renewals almost always favor the vendor, not you.
4. Align with Future Strategy: Integrate your SAP roadmap into the renewal. If S/4HANA or cloud is on the horizon, leverage SAP’s desire for you to adopt it – push for incentives, credits, or contract terms that support your transition without extra cost.
5. Benchmark and Set Targets: Know what discount and terms you should aim for by learning from industry peers and past deals. Set an internal target (e.g., “at least 40% off licenses, maintenance capped at 2% increase”) and negotiate towards it.
6. Negotiate Beyond Price: Don’t focus only on the upfront price – also negotiate contract flexibility (ability to swap licenses, adjust volumes, favorable audit terms, etc.). These nuances can prevent costly surprises in the future.
7. Use Leverage Wisely: If you have alternatives – whether considering a competitor’s product for part of your landscape or the possibility of third-party support – use that leverage. Just signaling that you have options puts pressure on SAP to make a better offer.
8. Document Everything: Ensure all negotiated concessions are written into the contract or renewal order form. Verbal promises from sales reps about “we’ll take care of you on extra licenses” don’t count. Lock in the discounts, credits, and protections formally.
9. Consider Expert Help: SAP licensing is complex. Don’t hesitate to involve a specialized licensing advisor or legal counsel to review the renewal. They can often identify hidden risks or additional savings that busy internal teams might miss.
10. Stay Firm but Relationship-Focused: Be assertive in pursuing cost savings, but maintain a respectful partnership tone with SAP. You want a sustainable relationship post-negotiation. Showing that you mean business on costs while remaining collaborative can lead to the best outcomes.
Checklist: 5 Actions to Take for Your Next SAP Renewal
- Inventory & Analyze Usage: Gather current SAP usage data (users, modules, engines). Identify any surplus licenses or compliance gaps. Document exactly what you have and what you truly use.
- Define Renewal Objectives: Set clear goals (cost reduction %, items to drop or add, contract terms to change). Align internally with IT, finance, and procurement leadership on these objectives and your walk-away limits.
- Engage SAP Early: Open a dialog with your SAP account manager well before the renewal deadline. Request a preliminary proposal or quote. Signal that you are evaluating your options, and schedule regular checkpoints leading up to the renewal.
- Negotiate & Iterate: Once SAP provides an offer, analyze it against your objectives. Counter with your asks for better pricing and more flexible terms. Use data (such as usage audits, benchmarks, and alternative quotes) to support your stance. Iterate through multiple rounds if needed. In each round, secure improvements (even small ones) in price or terms.
- Finalize & Future-Proof the Contract: Before signing, double-check that all agreed terms are captured. Verify that unwanted licenses are removed, new licenses are correctly added, discounts are applied, and any special clauses (price caps, conversion rights, etc.) are included. Ensure the renewal sets you up for the future – for example, if you plan to expand or upgrade during this term, the contract should accommodate that without major cost surprises.
By following this checklist, you’ll enter your SAP license renewal well-prepared and leave the process with a deal that optimally balances cost, risk, and business needs.
FAQs
Q1: How can we avoid overpaying for SAP licenses we don’t use?
A1: The best approach is to conduct a thorough internal audit of your SAP users and modules before renewing. Identify the “shelfware” – any licenses not actively used – and plan to eliminate them from your agreement. You may need to formally notify SAP to terminate those licenses or negotiate a swap for something more useful. Additionally, implement ongoing license management to prevent the accumulation of unused licenses in the first place.
Q2: What is indirect access, and why is SAP charging us for it?
A2: Indirect access refers to the usage of SAP data by non-SAP systems or users. For example, if a third-party app or a customer portal connects to your SAP system, SAP may consider that those external users or activities require licenses. In the past, this was a grey area that led to surprise fees during audits. SAP’s newer Digital Access model offers a way to license this by counting document transactions instead. During renewal, it’s wise to clarify and address any indirect usage – either by obtaining the appropriate digital access licenses or negotiating terms that cover your specific integration scenarios.
Q3: Can we reduce our annual maintenance fees with SAP?
A3: It’s challenging, but possible. While SAP has standard support rates, large customers can negotiate more favorable terms. You might secure a slightly lower percentage (say 19% instead of 22%) or negotiate a limit on yearly maintenance increases. Another strategy is to remove unused licenses from maintenance coverage, as those contribute to the fees. Suppose SAP is unwilling to adjust maintenance costs. In that case, some companies consider third-party support providers who charge roughly half of SAP’s rates – but you should weigh the loss of official updates and future flexibility before going that route.
Q4: How does moving to S/4HANA or the cloud impact our license costs?
A4: Transitioning to S/4HANA or a cloud subscription (such as RISE with SAP) changes your licensing model, and it can be an opportunity to reset costs – or inadvertently increase them if not managed effectively. On the plus side, SAP often provides conversion credits, allowing you to apply the value of your existing licenses toward the new system, thereby minimizing the need for new license fees. Cloud subscriptions bundle maintenance and may simplify cost management. However, ensure you understand the total cost of ownership: subscriptions can cost more over time, and you’ll want to negotiate protections against steep price hikes at the end of the initial term. It’s crucial to include any planned migration in your renewal negotiations to ensure you secure the best financial terms for that journey.
Q5: What if we discover a compliance shortfall (unlicensed use) during the renewal process?
A5: If you find you’ve been using more SAP functionality than you have licensed (e.g., too many users or higher usage of a licensed module), don’t panic – use the renewal discussion to resolve it. Generally, it’s better to self-identify and negotiate a solution than to wait for an audit. You can often fold the needed additional licenses into your renewal deal, potentially at a discounted rate or with a payment plan. Be upfront with SAP that you want to “right-size” the licenses as part of the renewal process. In many cases, SAP will work with you – it’s an opportunity for them to make a sale, and for you to legalize your usage at a lower cost than an after-the-fact true-up penalty. Always get any forgiveness or settlement in writing as part of the contract.
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