SAP S/4HANA Licensing in 2025: Strategy, Pricing, Audit Risk, and Optimization

SAP S/4HANA Licensing

S/4HANA licensing in 2025 demands strategic urgency. Gone are the days when SAP licensing meant simply counting named users.

Today’s landscape is a complex mix of perpetual licenses, cloud subscriptions, and usage fees based on document usage. CIOs and CFOs face a structurally different model than legacy ECC, with high financial stakes for missteps.

Every aspect of your SAP S/4HANA agreement, from user counts and Digital Access documents to contract terms, can become a cost trap or a cost advantage.

This executive guide serves as a survival playbook for mastering S/4HANA licensing, enabling strategic cost control, audit readiness, and negotiation power in 2025.

Every recommendation here is action-focused for leaders preparing for an SAP negotiation tomorrow.

Why It Matters Now:

SAP is aggressively pushing customers to S/4HANA (often via RISE with SAP subscriptions) ahead of ECC’s 2027 support deadline. Licensing is no longer just an IT issue; it’s a boardroom issue.

The right licensing strategy can save millions, prevent compliance crises, and give you a competitive edge in digital transformation.

The goal: turn SAP’s licensing logic into an advantage – ensuring 2025 strategies for cost optimization, airtight compliance readiness, and maximum negotiation leverage.

Read CIO Playbook: SAP S/4HANA Deployment Models.

The Big Shift from ECC – What’s Changed in Pricing and Risk

Transitioning from SAP ECC to S/4HANA isn’t just a technical upgrade – it’s a fundamental shift in pricing models and risk exposure.

Under ECC, companies primarily managed perpetual licenses and a stable of named user types (Professional, Limited, Self-Service, etc.) with annual maintenance fees.

Compliance focused on ensuring you had sufficient user licenses and module licenses. S/4HANA licensing 2025 introduces new variables that CIOs must grasp immediately:

• Subscription vs. Perpetual: While ECC was usually a one-time purchase + maintenance, S/4HANA offers subscription models (cloud SaaS via RISE with SAP) that bundle software, infrastructure, and support into an annual fee. This shifts costs from capital expenditures (CapEx) to operating expenditures (OpEx), changing how you budget and negotiate. It also means that if you stop subscribing, you lose access – a stark contrast to owning a perpetual ECC license, which remains valid indefinitely.
• New License Metrics: S/4HANA brought Full User Equivalents (FUE) and a revamped user classification. Instead of simply counting named users, cloud contracts categorize users into Advanced, Core, and Self-Service with different weightings. The licensing logic has new nuance – e.g., five core users might equal one full user equivalent. Misunderstanding these metrics can lead to over-paying or compliance gaps. Learn more about FUE licensing.
• Digital Access (Indirect Use): In ECC, indirect access compliance was previously unclear until SAP’s 2017 legal case (Diageo) shed light on the issue. Now, with S/4HANA, SAP offers a formal Digital Access licensing model that charges by documents created (such as sales orders and invoices) via non-SAP systems. This is a new risk vector – if you integrate third-party apps, you may incur additional fees unless you’ve licensed Digital Access or included it in your subscription.
• Higher-Stakes Audits: SAP has become more assertive in audits and compliance checks, particularly to prevent ECC customers from delaying their migration. S/4HANA contracts can carry steeper true-up clauses and fewer loopholes. For example, support fees for ECC have been rising (SAP imposed maintenance increases in recent years), making non-compliance or delay more costly. In short, the compliance bar is higher, and SAP has new ways to enforce (or exploit) it.

What This Means:

Executives must recognize that S/4HANA is not “business as usual”. License types, cost structures, and audit tactics have evolved. An ECC-era licensing strategy will fail in the S/4HANA era.

It’s critical to unlearn old assumptions (e.g., “we just buy more named users if needed”) and reframe your approach around S/4HANA’s new model – or risk surprise costs and weaker negotiation positions.

Read SAP RISE Negotiations: A Guide for CIO and Procurement.

The Licensing Spectrum – Perpetual, Subscription, Hybrid

In 2025, enterprises have three primary S/4HANA licensing models, each with pros and cons. Understanding this spectrum is key to picking a cost-effective path and negotiating the right terms:

• Perpetual On-Premise Licensing (Traditional Ownership): You purchase S/4HANA software licenses upfront (often a hefty CapEx outlay), then pay annual support (typically ~22% of license cost) for upgrades and support. You run S/4HANA in your data center or on a hosting platform of your choice. This model offers full control and indefinite usage rights – you own the license, making it attractive if you plan to use the system for a decade or more. However, initial costs are high, and you’re responsible for infrastructure, hardware, and skilled staff. Example: A company might pay $5 million for S/4HANA licenses and $1 million per year in support. After five years, ownership can be cheaper than a subscription if the system is utilized efficiently and remains stable. The risk is overbuying licenses or modules that sit idle (“shelfware”), since you pay upfront.
• Subscription (Cloud SaaS via S/4HANA Cloud or RISE): You pay an annual or monthly fee per user (or per FUE) as an OpEx expense. RISE with SAP is the flagship subscription bundle, which includes the S/4HANA software (in either public or private cloud edition), the underlying infrastructure (hosted on SAP or a hyperscaler), and support services, all in one contract. Upfront costs are minimal, and SAP handles upgrades and technical operations. This model offers agility – easy to start and scale – but over several years, it can be more expensive than owning, as the meter is always running. Importantly, RISE requires a commitment to SAP’s cloud terms and typically includes a minimum subscription term and size (e.g., a minimum FUE count). You typically have to retire or convert existing licenses into the RISE deal (SAP often gives credit for this, but you relinquish perpetual rights). The upside: simpler billing and no hardware costs; the downside: less flexibility (you can’t drop components you don’t use) and risk of vendor lock-in. Financially, a subscription might be presented as “$X per user per month” – for instance, a list price of roughly $100–$150 per user per month for full S/4HANA access, negotiable downward with volume and term. Over 5+ years, subscription fees can overtake a one-time purchase, so doing a 5-year TCO analysis is essential.
• Hybrid Deployments (Mixed Model): Many enterprises choose a phased or mixed approach. Hybrid can mean running S/4HANA on-premise for some environments (or retaining ECC for specific functions) while utilizing cloud subscriptions for others. It can also refer to a transition period where you keep your existing ECC licenses running in parallel with a new S/4HANA subscription during migration. Hybrid models aim to balance control and cost, for example, by keeping a core ERP on-premises for stability and utilizing RISE for new subsidiaries or rapid deployments. If you pursue a hybrid approach, negotiation must cover integration licensing (ensuring that users moving between on-premises and cloud environments aren’t double-counted) and dual-use rights. A common tactic is negotiating dual-use rights for migration, allowing a period where ECC and S/4HANA run concurrently without incurring double license fees. SAP will often agree to this if it’s time-limited and part of a migration plan. Hybrid scenarios require careful governance to avoid overlaps and to optimize costs in both worlds, but they can reduce risk by not putting all your eggs in the cloud basket at once. Learn more about S/4HANA License Optimization Strategies.

Choosing the Right Model: Align the model with your company’s financial strategy and risk tolerance.

If you value long-term cost stability and control, a perpetual license approach (with perhaps third-party infrastructure) might be better, especially if you have a strong IT team. If speed, simplicity, and shifting to OpEx are priorities, RISE with SAP or S/4HANA Cloud subscriptions can make sense – but negotiate hard on price and terms to avoid overspending over time.

Many large SAP customers use the threat of staying on perpetual (or even third-party support for ECC) as leverage to get a better RISE deal.

In any case, be aware that SAP’s preference is for cloud/subscription, and they often incentivize it with extra discounts or by making the perpetual path less attractive (for instance, by increasing support costs or limiting new ECC sales).

A hybrid strategy can be a smart middle-ground, but it requires disciplined management to truly get the best of both worlds and not inadvertently pay twice. Before committing, ensure that the chosen model meets both IT requirements and budget expectations.

Read Negotiating with SAP: A CIO’s Playbook.

Digital Access Deep Dive – Understanding Document-Based Charging

One of the most significant licensing changes in the S/4HANA era is SAP Digital Access licensing – SAP’s response to the notorious “indirect access” issue.

In simple terms, Digital Access means you pay for certain documents created in SAP via indirect use (external systems or automated processes), rather than paying for the external users. SAP has defined nine important document categories – such as Sales Orders, Purchase Orders, Invoices, and Deliveries.

Whenever a non-SAP system or application creates one of these in your S/4HANA system, it counts as a digital document that may require a license.

Importantly, SAP only charges for document creation events; viewing or querying data, or even updating a document, doesn’t incur additional cost if the creation was licensed.

This model was introduced to bring clarity after years of ambiguity around indirect access (highlighted by lawsuits where companies got hit with massive fees for external systems connecting to SAP).

How it Works in Practice:

If your e-commerce platform writes a sales order into S/4HANA, or a supplier portal creates a purchase order, those count. SAP uses a tiered pricing model for documents – the more documents, the higher the cost; however, volume discounts are applied.

For example, the first million documents might be at a base rate, and the next millions at a lower unit cost.

SAP provides measurement tools (which you should use proactively): an Estimation Tool (to count documents on ECC or S/4) and the SAP Passport tool (which, on newer systems, can distinguish SAP-internal vs external document creation). These tools help establish your document baseline.

Be cautious: the estimation tool can overcount because it can’t always determine if a document was created by a human user (already covered by a user license) or by an interface (which is truly indirect).

The Passport tool is more precise but requires system updates to implement. Classification errors or miscounts can lead to either overestimating usage (and overbuying licenses) or underestimating (and facing an audit shortfall).

2025 Risk Vectors: As of 2025, Digital Access compliance is a top audit focus for SAP. Many companies still haven’t switched to the document model, clinging to named-user licensing for indirect use (which can be a gray area).

SAP’s auditors now often run scripts to identify interfaces and count documents, so ignorance is no defense.

High-risk scenarios include large integrations (e.g., Salesforce creating thousands of orders in SAP), IoT or RPA bots generating transactions, and any scenario where you have multiple external users (such as thousands of customers or partners indirectly accessing your SAP system).

Without a Digital Access license, SAP could claim each external user needed a named user license – a potentially catastrophic compliance exposure.

Your Strategy: Get ahead of it.

Determine your approach to Digital Access now, before SAP audits you.

SAP offered the Digital Access Adoption Program (DAAP) with two incentive options: one granting a 90% discount on document licenses if you bought coverage for all your current usage, and another allowing 15% growth headroom if you commit to a baseline (paying full price but for 115% of your current volume).

These programs were extremely generous (the 90% off essentially charges you for only 10% of the documents), and many enterprises took advantage.

If you haven’t addressed this yet, see if those incentive terms (or similar) are still on the table in 2025. Even if formal DAAP offers have expired, SAP sales teams are often empowered to cut special deals on Digital Access to encourage compliance – use that in negotiations.

At a tactical level, conduct an internal Digital Access assessment: count your docs, identify which systems cause them, and decide if converting to document-based licensing makes financial sense.

Some cases might be cheaper to stick with named user licenses (if you only have a few integrations with limited transactions).

In other cases – such as a public-facing app that generates numerous SAP entries – the document model will likely be far cheaper and safer.

Whatever you do, get it in writing in your contract. If you adopt Digital Access, ensure the specific document types and volumes covered are enumerated.

If you plan to use named users for indirect purposes, negotiate language that clarifies these scenarios to avoid future disputes.

Bottom line: Digital Access licensing can be either a compliance headache or a manageable cost.

With careful analysis and negotiation, you ensure it’s the latter. Don’t let SAP spring a document count audit on you without having your numbers first and a plan in place.

Read SAP S/4HANA Cloud (RISE) vs. On-Premise Licensing.

FUE in Action – Calculations, Risks, and Optimization Paths

SAP’s Full User Equivalent (FUE) model is pivotal in S/4HANA Cloud and RISE licensing.

It’s essentially SAP’s way to normalize different user types into a single metric for pricing. As an executive, you don’t need to do the nitty-gritty math yourself, but you do need to understand the mechanics to avoid overpaying or getting caught non-compliant.

What is an FUE? Think of 1 FUE as one “full” user in terms of system usage.

In practice, SAP defines categories like Advanced Use, Core Use, and Self-Service Use and assigns each a fraction of an FUE:

• Advanced User – the heavy-duty user who can do everything (create/modify data across all modules, run extensive reports). By definition, 1 Advanced user = 1 FUE. This is akin to the classic “Professional” user license. These are the users with the highest capability (and typically the highest cost).
• Core User – a functional or operational user with a more limited scope (perhaps restricted to specific modules or only able to do certain transactions). SAP’s ratio is 5 Core users = 1 FUE. In other words, each Core user is 0.2 FUEs. These could be analogous to legacy “Limited Professional” users – mid-level access for roles like clerks or analysts who don’t need full access.
• Self-Service User – a light user, typically an employee or occasional user who might just use ESS (Employee Self-Service) functions or basic read/approve tasks. 30 Self-Service users = 1 FUE, meaning each self-service user is ~0.033 FUEs. These are very low-cost users individually (often used for scenarios like employees recording time, requesting leave, or basic shopping cart approvals in SAP).

SAP may have other categories (such as Developer or similar) mapped to FUE as well.

For instance, a developer user might be counted as more than one FUE or fewer, depending on how SAP structures it (ensure you check if you have special roles).

But the key idea: instead of buying X of each user type, you buy a pool of FUEs, and then allocate them to users as needed (with those conversion ratios). Learn more about Modeling S/4HANA Licensing Costs After ECC Migration.

Risks and Pitfalls: On the surface, FUE seems flexible, but there are traps:

• Mis-estimating Your User Mix: If you assume too many low-level users and not enough heavy users, you could under-subscribe. For example, imagine you license 100 FUEs, assuming mostly Core users (which would cover 500 Core users), but in reality, you have 200 users who need Advanced capabilities. Those 200 Advanced alone would require 200 FUEs, leaving you 100 FUE short and non-compliant. On the flip side, overestimating heavy users means you bought more FUE than necessary (overspend). It’s critical to analyze your user population in detail: how many users require full SAP functionality versus those who require limited functionality? Model scenarios before you sign: what if 10% more users require Advanced than we thought? What if a group of users could be downgraded to Self-Service? This modeling ensures you purchase the right FUE volume.
• Minimum Commitments: SAP often imposes a minimum FUE purchase for cloud deals. For example, the RISE private edition might have a 40 FUE minimum, while the public cloud has a 35 FUE minimum, and so on. If you’re a smaller operation or in a pilot phase, these minimums can effectively be over-licensing mandates – you pay for a floor number of FUEs even if your usage is below it. This is non-negotiable in standard programs, but a savvy negotiator can sometimes get a concession (like additional cloud services bundled to make up for an overshoot in user count). Be aware of these minimums so they don’t come as a surprise.
• No Reduction During Term: Once you commit to a certain number of FUEs in a subscription contract, you generally cannot decrease that number until renewal. If your workforce shrinks or you find you overestimated, you’re stuck paying for the unused capacity. This is why it’s crucial to right-size from the start and possibly negotiate flexibility if you foresee downsizing (though SAP will resist reductions, you might negotiate a one-time adjustment mid-term or an ability to transfer some FUE to another cloud service as compensation).
• Compliance vs. Over-Allocation: Interestingly, the FUE model can reduce compliance risk in one sense – because you’re allowed to reallocate license types as needed within your FUE pool. You’re not locked into a specific number of each user type; however, you cannot exceed the total FUE. This means if someone’s role changes, you don’t have to buy a new license; you just consume FUE differently. The flip side is over-allocation risk: it’s easy for business units to start assigning everyone higher access rights “since we have FUEs available,” and suddenly you’ve allocated more FUEs than you own. Good governance (monitoring how FUEs are assigned) is needed to prevent an inadvertent compliance issue. Treat FUE like a budget – you can spend it on various user types, but you must track the total.

Optimization Paths: To make the most of FUE licensing:

• Continual User Profiling: Regularly review user roles and actual usage. You may find that some users with Advanced access rarely use the advanced features – they could potentially be downgraded to Core, freeing FUE capacity for other purposes. This avoids over-paying for unneeded high-level access. Conversely, identify if any unlicensed usage is creeping in (e.g., a generic account being used beyond the allowed scope – clamp down on that).
• Leverage the Flexibility: If you anticipate organizational changes (such as new departments or acquisitions), remember that FUEs can be reassigned. For example, if one project sunsets and 50 Advanced users are no longer needed, those FUEs can cover new users in another area. You’re not stuck with “shelfware licenses” as often happened with perpetual licenses. Ensure that your contract does not inadvertently limit this flexibility – avoid any clauses that restrict user names or specify a specific ratio; the contract should simply outline the total FUE and reference the standard usage definitions.
• Monitor Usage vs. Entitlement: SAP may not actively police your FUE allocation until an audit or renewal; however, it’s wise to monitor usage internally. Some companies build an internal license usage report that maps current users to FUE consumption to determine the headroom. If you’re consistently at (or above) 100% utilization, it’s a warning sign to either true up or proactively negotiate more FUEs (before SAP notices and charges the list price). If you’re well below, note that for renewal, you can potentially negotiate a reduction or push for other value-added benefits, as you’re overpaying.

In summary, FUE is both a simplification and a complication. It provides a unified metric (great for bundling and potentially negotiating enterprise-wide deals), but it introduces a layer of abstraction that can obscure actual usage if not handled carefully.

Treat FUE capacity as a precious resource – plan it, track it, and optimize it – just as you would cloud computing resources or budgets.

Read SAP S/4HANA RISE: Contract and Licensing Challenges.

2025 Price Dynamics – Tiers, Blocks, and the True-Up Game

SAP’s pricing in 2025 is deliberately opaque; however, there are patterns that every executive should be aware of.

SAP licensing isn’t priced linearly; it’s a world of volume tiers, bundled “blocks,” and negotiated discounts. If you don’t understand these dynamics, you risk playing SAP’s game instead of bending it to yours.

Volume Tiers & Discounts:

SAP operates on a principle: the more you buy, the cheaper it gets per unit (in theory). For example, the list price for one Professional user might be $ 3,000 (on-premises) or $150 per month (cloud).

But no large customer pays list – discounts of 30%, 50%, even 70% are common in big deals. SAP has internal bands where, if you purchase X users or Y dollars’ worth of software, a higher discount applies.

As a negotiator, you want to push into the highest discount tier possible. One way is bundling: instead of signing separate, small deals for various SAP products, negotiate a single, comprehensive package.

Hitting a large volume can justify a steeper discount (SAP’s salespeople have thresholds for bigger commission multipliers when deals cross certain values, so they’re motivated too).

For instance, a $10 million deal might receive a 50% discount, whereas two separate $5 million deals might each receive only a 40% discount.

Aggregation is power. However, be careful not to buy things you don’t need just to get a higher headline discount – focus on the net cost and value, not just the discount percentage.

Block Pricing Quirks:

Some SAP licenses (especially certain engines or new cloud services) are sold in blocks or have price cliffs. Example: Digital Access document packs might be sold in blocks of, say, 1 million documents.

If you need 1.2 million, you might have to buy two blocks (i.e., 2 million) – effectively paying for 0.8 million that you don’t use. Similarly, user counts might have breakpoints: up to 500 users is one price tier, 501 users might bump into a new bracket.

The key is to smooth out these jumps in negotiation. Try to get SAP to prorate or allow a flexible count. Or negotiate that if you go slightly over a block, you’ll pay a small overage fee per unit rather than buy a whole new block. SAP won’t always agree (they love selling the next block), but awareness gives you leverage for bargaining.

Structure your purchase in a way that minimizes waste – e.g., if you know you’ll eventually have 600 users, don’t buy 500 now and 100 later at higher cost; negotiate all 600 upfront at a better per-unit rate, with perhaps a phased deployment schedule.

The True-Up Game:

True-ups are periodic adjustments that account for any usage that exceeds the licensed amount. In on-premises licenses, the “audit/true-up” may occur annually or at SAP’s discretion via an audit – if you have used more, you must purchase the excess (often retroactively with maintenance).

In cloud subscriptions, you are typically contracted for a specified number of users/FUEs for the term, so true-up occurs at renewal (or, if your contract has flexible terms, possibly quarterly if usage exceeds certain levels).

How to win the true-up game? Negotiate price protections for additional licenses. Your contract should state that any additional users or FUEs purchased during the term will be at the same discount or rate as the initial purchase (or even a pre-agreed flat price).

This prevents SAP from gouging you if you grow mid-year. Also, set a schedule for true-ups – e.g., you’ll formally reconcile license usage every 12 months, rather than living in constant fear of an ad-hoc SAP audit. That way, you can plan and budget for any growth.

Always try to true-up on your terms, not SAP’s – it’s better to go to SAP and say “we’ve added 50 users, we want to purchase them under our existing deal conditions” than to let an audit find them and be in a defensive position.

And if your growth triggers a significant increase in licenses, use that as an opportunity to renegotiate the entire deal (you deserve a better volume discount at the new, higher volume – remind SAP of that).

“Unlimited” Deals and Hidden Premiums:

In some negotiations, SAP may dangle an “Unlimited” license agreement – for example, an unlimited number of ERP users or an unlimited amount of certain transactions for a fixed price.

This can be attractive to eliminate compliance risk, but nothing is truly unlimited. There is always fine print: the deal might be unlimited for a term (say 5 years), but then at renewal, you have to certify usage and potentially pay more if you grew. Or it might exclude new acquisitions or certain power users.

Moreover, SAP offers unlimited deals at a hefty premium.

Essentially, they calculate what they think your worst-case usage is and add a margin. If your growth is less than that, you overpaid. So be wary – only pursue unlimited-style agreements if you genuinely expect explosive growth that is difficult to manage from a licensing perspective. Even then, negotiate clarity on renewal terms (e.g., if we exceed certain numbers, how does renewal pricing work? No nasty surprises).

Often, a well-negotiated large volume deal with the ability to add more at the same rate is financially safer than a one-price-for-all unlimited deal that you can’t reduce later.

Hidden Costs SAP Won’t Mention Upfront:

Part of mastering SAP cost control is sniffing out the less-obvious costs:

• Support Cost Inflation: SAP’s standard support is ~22% of your net license cost annually. Many executives don’t realize that if you negotiate a great discount on licenses, your support fee is 22% of the discounted price (good). However, if you later true-up at a higher price, your support base increases. Additionally, SAP has been known to raise support fees; in fact, they have implemented increases (e.g., in 2024, a general support fee rise was implemented). If your contract doesn’t cap support increases, your maintenance bill can quietly grow even if you don’t buy anything new. Negotiate caps (e.g., support will not increase by more than 3% per year or will stay at 22% of the initial net price).
• Cloud Renewals: On subscription, SAP often includes a clause that allows prices to increase on renewal (commonly 5-7% or tied to inflation indices). If you’re signing a 3-year RISE contract, for example, you might face a bump in year 4. Try to lock renewal price protections now (even a simple clause: “renewal increase capped at 3%” or “right to renew at same pricing for X years”). If you don’t, you might get an unwelcome surprise when budgeting for the next term.
• Bundled Software You Don’t Use: In big deals, SAP might include extra software (like a bundle of SAP Analytics Cloud, or some SAP Ariba modules) “at no charge” to sweeten the pot. Be mindful: if it’s included, you might start paying maintenance on it in year 2, or at renewal, the bundle might suddenly carry a cost. Or it could trigger usage compliance issues if you deploy it. Only accept truly free bundles that you want to potentially use. If not, you can negotiate them out to simplify compliance (why have a module in your contract that you have to monitor if you never intended to use it?).
• Indirect Use Gray Areas: Even with Digital Access available, some contracts still leave gray areas – for instance, if you use a third-party add-on that uses SAP’s data but not via standard documents, is it covered? SAP can exploit these edge cases in the future. It’s a “hidden” cost if you have to suddenly license something unexpected. Close those gaps in contract language now. For example, explicitly state that certain interfaces or scenarios are considered covered by named user licenses and won’t trigger extra fees. It’s easier to negotiate that before signing than to fight about it during an audit.

In essence, navigating SAP price dynamics is about looking beyond the sticker price. Always ask: “What happens if… we double users, we acquire a company, we need more storage, we renew after 3 years, etc. – and how is it priced?”

Get as many of those answers codified in the contract. This forward-thinking approach separates those who get caught by SAP’s fine print from those who turn the tables and make the pricing model work for them.

Read SAP S/4HANA Licensing: Models, Costs, and Strategic Considerations for CFOs and IT Leaders.

Common Failure Points – Where Enterprises Overspend

Even savvy companies can fall into familiar traps that cause overspending on SAP. Recognizing these failure points upfront lets you avoid them and save significant costs.

Here are the most prevalent areas where enterprises pay far more than necessary:

• Over-Entitlement and Shelfware: This is the classic case of buying more licenses or subscriptions than you use. It often happens due to overestimation of needs or because SAP bundled extra users/modules to “give a better discount” – a false economy if those extras sit unused. For example, purchasing 1,000 Professional user licenses when only 700 employees need that level of access leaves 300 licenses unused (yet you’re still paying support on them yearly). Similarly, buying a suite or bundle where you only actively use 60% of the functionality means that 40% is essentially unused. Solution: Rigorously assess your needs before making a purchase. Start with a smaller core and add users as needed (with price protections) rather than overbuying “just in case.” Conduct annual internal audits to identify unused licenses – and use that data to negotiate swaps or reductions at renewal. Remember, every unused license is essentially budget waste that could have been saved or invested elsewhere.
• Misclassified Users (License Type Overkill): Misclassification is a subtle overspend – assigning a higher-level license to a user who would be fine with a cheaper one. For instance, granting all employees Professional access “to be safe” when many only run reports or do self-service tasks. This can significantly inflate costs. A Professional license might cost 20x more than a Self-Service license. If 500 users could be downgraded from Professional to a functional or ESS license, that’s an enormous savings. Enterprises overspend when they don’t map actual job roles to appropriate license types. Solution: Profile your users. Use transaction usage data to see what each role truly uses in the system. It’s often eye-opening – you might find a whole department that never goes beyond display or time-entry transactions (perfect candidates for cheaper licenses). Implement governance to assign new users the lowest privilege license that fits their role, only escalating privileges as needed. Misclassification is one failure point that is fully within your control to fix with internal discipline.
• Uncontrolled Consumption (Cloud Creep): In the cloud subscription world, it’s easy to add one more user here, one more API integration there – and before you know it, you’ve exceeded your licensed metric. Unlike perpetual licenses, where you had to procure additional licenses to over-deploy, cloud portals may allow admins to create users or use services on the fly. This uncontrolled consumption can lead to unexpected overage bills or true-up costs. A classic example is activating an extra SAP module or service not in your contract – maybe a well-meaning IT team enabled a feature for testing, and it stayed on in production (incurring fees). Or simply scope creep: a project onboarded 50 contractors into SAP, but nobody told procurement to license them. Solution: Treat your subscription metrics as hard quotas. Use SAP’s tools or your monitoring to alert if you approach limits (such as FUEs used versus purchased). Internally, have a process: no new user group or interface goes live without a license check. It’s akin to cloud infrastructure cost management – just as you watch AWS/Azure spend, watch your SAP user counts and document counts. Catching overuse early means you can negotiate a proper expansion instead of paying a penalty later.
• Misaligned Package Choices: SAP offers lots of product editions and bundles. Picking the wrong one can lead to overspending. For example, S/4HANA has different editions (enterprise vs. line-of-business packages). Some companies purchase the top-tier package, which includes modules they’ll never deploy, when a cheaper edition or a la carte approach would suffice. Similarly, moving to RISE with SAP without analyzing if you truly need all its included components (maybe you didn’t need the full SAP BTP platform credits included, for instance) could mean you’re paying for fluff. Solution: Match packages to business usage. If you don’t need, say, advanced warehousing or treasury functionality, don’t buy the edition that includes them. You can often license core ERP and add specific modules later if needed. Avoid the “might need it someday” upsell – focus on the realistic roadmap for the next 1-2 years. If SAP’s bundle is pushing you to pay for more than that, push back or negotiate a custom bundle. You want fit-for-purpose licensing – nothing more, nothing less.
• Overlapping Maintenance and Dual Running Costs: During migrations or corporate changes, companies sometimes incur duplicate costs for the same capability. A typical failure point: you migrate to S/4HANA Cloud but continue to run your old ECC maintenance “just in case” for far longer than necessary. Or you acquire a company with SAP, and instead of consolidating contracts immediately, you run two parallel license pools with separate costs. These overlaps can quietly burn cash. Solution: Plan transitions tightly. Negotiate contractual grace periods (e.g., 12-18 months of ECC/S4 dual use as mentioned) to avoid having to pay full boat for both systems. If you’re not using a system, consider reducing its licenses or placing it on third-party maintenance until the end of its lifecycle to cut costs. In M&A, engage SAP early to consolidate contracts – SAP may even incentivize this by preserving discounts or offering migration credits, which is preferable to paying full freight on two separate agreements for years.

By identifying these failure points, you can implement controls and policies to prevent overspending. Many enterprises find that a significant chunk of their SAP budget is tied up in these avoidable areas.

Address them, and you free funds for innovation or simply return to the bottom line. Every dollar not wasted on shelfware or mislicenses is a dollar that can go into growth initiatives instead.

CIO Playbook: RISE with SAP vs Traditional On-Premise SAP Licensing.

Pricing Benchmarks and Ranges

Read Migrating from SAP ECC to S/4HANA – Licensing Conversion.

Modeling for the Future – AI, Automation, and Seasonal Demand

S/4HANA licensing must not only meet your business needs today but also adapt to tomorrow’s innovations and fluctuations.

Two areas deserve special attention: the rise of AI-driven workloads and automation, and the realities of seasonal or volatile demand in your user base or transactions.

AI & Automation Impact:

Enterprises are integrating AI and robotic process automation (RPA) into their operations, which often involve SAP systems.

For example, you might deploy an RPA bot to input orders, or an AI service to read invoices and create entries in S/4HANA. From a licensing perspective, these non-human users can trigger either named user requirements or Digital Access document charges.

A common mistake is thinking “only humans need licenses.” In SAP’s eyes, a bot or AI agent interfacing with the system is either an indirect access scenario (if it goes through an API, creating documents) or potentially a “device” that should have a named user license.

SAP doesn’t sell a cheaper license just for bots – usually, you must license them as a normal user (often a Professional user if the bot performs various tasks). This can be a shocking cost realization if you plan to deploy dozens of bots.

Similarly, an AI workload often involves large data exchanges that can result in a significant number of documents (for example, an AI algorithm creating thousands of material master records or processing invoices in bulk).

Strategy for AI/RPA:

Bake licensing into your automation strategy. If you are undertaking a large RPA initiative, consider negotiating with SAP for a licensing approach upfront. For instance, some companies negotiate a “bot user license” classification or a pool license for unlimited bots up to a certain throughput, instead of one license per bot.

SAP may not advertise it, but if you push, they might accommodate, or not discourage, your innovation (especially if you frame it as “otherwise this could be a non-SAP solution…”).

At a minimum, ensure any Digital Access licensing covers your planned AI transactions to avoid per-document charges.

And include your SAP license experts in AI project planning – a fancy AI project can turn into a budget buster if each automated action quietly incurs SAP fees.

Proactively model: e.g., “We expect our AI to create 50,000 orders a month; what’s the cost via Digital Access vs. giving it a named user license vs. maybe funneling it through an existing licensed user context?” Choose the most economical route and secure it with SAP.

Seasonal and Elastic Demand:

Many businesses experience peak seasons (such as retail holiday rushes and fiscal year-end processes) where SAP usage spikes. In the old days of on-prem, you might size licenses for the peak (meaning off-peak, you’re over-licensed).

In a subscription model, you might desire the cloud-like ability to scale up and down. Unfortunately, SAP doesn’t automatically allow short-term scaling down of user counts – you typically commit for the year.

However, you can negotiate some elasticity. For example, if you need 20% more users for 3 months a year, request a flexible add-on license pack from SAP that can be activated for a pro-rated fee and then deactivated.

Or negotiate the ability to average usage over the year (so you can exceed the count in peak months as long as the yearly average is within your subscription).

At the very least, plan true-ups after peak season, not during – so you add the necessary licenses and then drop them post-peak, ensuring you’re not stuck paying for peak level year-round.

Another aspect of elasticity is module usage or infrastructure size. If you’re on RISE, perhaps your system size (in terms of CPU/memory) might need to scale at peak. Ensure your contract either includes a buffer for this or clearly defines how overages are charged (e.g., using cloud credits or a transient environment).

Some companies negotiate an “Extended Terms” clause for peak – e.g., they can temporarily exceed user counts by X% for Y days without breach, as long as they notify SAP and pay the pro-rated cost after. It’s not standard, but it’s achievable with the right leverage, especially if your industry’s peaks are well-known.

Future Modeling – Growth and Contraction: Use scenario planning in your negotiations. Ask “What if we double in size in 2 years? What if we cut half our workforce? What if we spin off a division?” and see how the contract handles it.

A robust licensing strategy in 2025 accounts for both hyper-growth and downturns. For growth, ensure volume discounts scale and consider pre-negotiating a price for additional blocks of users (as mentioned).

For potential downsizing or divestment, try to negotiate some ability to remove licenses or get credits (admittedly difficult SAP contracts are biased against reductions, but in large enterprise agreements, sometimes you can insert a one-time recalibration clause or get SAP to agree to repurpose unused subscriptions towards other SAP software as an alternative).

Also, if you anticipate a significant tech change – e.g., moving some functionality off SAP to a different platform or using a lot of AI-driven workloads instead of human users – consider how to reflect that.

Perhaps fewer human users, but more digital documents. In such a case, you might want to shift some investment from named user licenses to Digital Access licenses.

That requires foresight and a willing partner at SAP to craft a custom plan, but that’s exactly the kind of strategic conversation to have before signing a renewal, not after.

In summary, model the future, then negotiate for it now. Don’t let your SAP contract be a static, one-dimensional snapshot that doesn’t flex. Business is dynamic – your licensing should be too.

By addressing AI, automation, and seasonal fluctuations in your licensing strategy, you ensure that sudden licensing costs or compliance issues won’t hamper innovation and growth.

Read CIO Playbook: Navigating Licensing for New SAP S/4HANA Embedded Features.

Matching Licensing to Corporate Strategy – M&A, Cloud, and Beyond

Your SAP licensing strategy should never exist in a vacuum – it must align with your broader corporate strategy and upcoming business events. Two companies with identical SAP systems might make very different licensing choices if one is planning an acquisition, and the other is divesting a business.

Here’s how to ensure your licensing approach supports, not hinders, your strategic moves:

Mergers & Acquisitions:

• Merging Two SAP-Using Companies: If your company plans to merge with or acquire another company that also uses SAP, be aware that you cannot simply merge the licenses. SAP licenses are typically non-transferable assets tied to the original licensee. That means post-merger, you usually need to consolidate contracts via SAP’s approval. The upside is that a merger is an opportunity: you can negotiate a new, combined contract with higher volume (thus better discounts) and eliminate duplicate licenses. The key is to involve SAP confidentially as early as possible. Negotiate from the angle of, “We want to be a bigger SAP customer – give us a fair deal that covers both entities.” Watch out for compliance gaps in the interim: if two companies start operating as one and share systems before SAP formalizes the license merger, technically, users from one entity might be unlicensed on the other’s system. This often happens under Transitional Service Agreements (TSAs). Plan for a short-term solution (SAP may grant an interim license, or you keep systems separate until contracts merge). Always ensure the new contract explicitly covers all legal entities following M&A – update the licensed entity name and affiliates list accordingly.
• Acquiring a Non-SAP Company: If you buy a company that wasn’t using SAP and now you want to roll them onto your SAP, simply count the new users and include that in your license growth plans. This is more straightforward – it’s like adding new users, which either consumes your existing license headroom or triggers a need to buy more. Ideally, if you foresee potential acquisitions, consider negotiating a pre-priced add-on in your contract (e.g., allowing for up to 20% more users at the same discount). That way, when the acquisition occurs, you already know the cost of bringing them into SAP.
• Divestitures: Spinning off or selling a business that uses your SAP can be even trickier. Because licenses aren’t transferable, the new company can’t just take a chunk of your licenses with them (unless SAP agrees via contract novation or assignment, which they’ll likely only do if the new entity signs a fresh deal). As the seller, you need to either purchase a license carve-out for the divested unit or maintain a TSA, allowing them to use your system temporarily while they transition. If you anticipate a divestiture, negotiate a clause now that if a part of your company is sold, that entity can continue to use SAP for X months under your license (TSA period) and/or has the right to purchase necessary licenses at a predetermined price. Otherwise, the buyer of that business might face a nasty surprise needing to license SAP from scratch under duress (which can reduce the value of your deal). Savvy companies even negotiate “carve-out credits” – if they divest a portion, they can reduce their license count and receive a corresponding reduction in maintenance fees. SAP doesn’t volunteer this, but it can be discussed if you bring it up.
• License Allocation Post M&A: One subtle point – after a merger, you might have overlapping license grants (maybe both companies had some of the same SAP products). You might not need all of them going forward. Utilize the merger to optimize: consider terminating some redundant licenses or negotiating with SAP to exchange them for more beneficial options for the combined entity. Don’t keep paying maintenance on two sets of, say, Finance module licenses when you only need one system.

Cloud Strategy Alignment:

• Going All-In Cloud vs. Hybrid: If your IT strategy is “cloud-first” or you’ve committed to RISE with SAP to transform faster, ensure your license contract supports that journey. For instance, if you still have some on-prem licenses but plan to fully move to the cloud in 2 years, negotiate the ability to sunset maintenance on those on-prem licenses without penalty or even trade them in for cloud subscription credits. On the other hand, if you’re cautious and maintaining on-prem for certain critical systems (maybe for regulatory or performance reasons), then don’t let SAP force a one-size cloud deal on you. You might keep a core perpetual license and enter into a smaller RISE contract for the other parts. Hybrid is okay – just be clear on what each environment covers to avoid double licensing. If, say, some users need access to both on-prem and cloud S/4HANA, clarify with SAP if one license covers both or if you need separate licenses (commonly, a cloud user doesn’t automatically cover on-prem use and vice versa, unless you have a special agreement). Push for concurrent use rights in hybrid cases – e.g., a named user can access either environment under one fee as long as it’s the same individual.
• Aligning with Cloud Innovations: SAP regularly releases cloud-only innovations (e.g., specific AI services, Industry Cloud extensions). If your strategy is to leverage these, consider licensing models accordingly. Some might be subscription add-ons. Plan budget and consolidation – it’s often beneficial to tie new cloud services into your main S/4HANA agreement for simplicity and bargaining power (instead of separate contracts for each new service). That said, be cautious: adding too many side services can complicate compliance if their usage overlaps. A clean approach is to have an enterprise agreement that can flexibly include new SAP cloud services under one umbrella, rather than piecemeal.

Global Expansion and Rollouts:

• Geographic Considerations: If you’re rolling out S/4HANA to new countries or subsidiaries globally, know that SAP licenses are generally global (if your contract covers affiliates worldwide). But sometimes local SAP entities will push separate deals or local fees (especially for cloud hosting in certain regions). Insist on a global contract that covers all regions to maximize volume discounts. Also, factor in currency and tax differences – a global contract in one currency can be simpler and hedge against currency fluctuations in budgeting. If you must sign regional contracts (due to legal reasons), negotiate them together to ensure consistent terms and to avoid duplicative charges (like don’t pay twice for the same user just because they use two regional systems). A global rollout might justify an enterprise license agreement with SAP, essentially trading per-user pricing for a broader, all-users license for a flat fee (which, as discussed, can be pricey but in some cases simplifies things for a worldwide deployment – just weigh the cost against the benefit carefully).

AI Initiatives and Digital Transformation:

• Incorporating Emerging Tech: If your corporate strategy includes heavy AI, IoT, or big data initiatives, ensure your SAP licensing won’t throttle that. For example, if you plan an IoT project where sensors create millions of records in SAP, talk to SAP about an IoT-specific license or a custom metric (they have, at times, offered specific licenses for IoT scenarios). Alternatively, if you plan to use SAP’s Machine Learning or AI services (such as SAP AI Business Services), check if these are included with your S/4 license or require a separate subscription – and negotiate accordingly. You don’t want an innovation project to be stalled because “we didn’t budget for those SAP AI licenses.” If AI will reduce human users (efficiency gains), think about if you can reduce user licenses later – perhaps commit to certain AI and in exchange negotiate the ability to cut some user licenses without breach, framing it as shifting how you use the software rather than dropping SAP. SAP is likely to eventually monetize AI usage as well, so stay ahead by having those discussions now.

Sustainability and Future-Proofing:

• It’s not uncommon for companies to have strategic sustainability or cost optimization goals (like infrastructure consolidation). If you plan to consolidate systems (say multiple SAP instances into one S/4HANA instance), consider the licensing effect – fewer systems don’t directly change license needs (it’s user-based). Still, it can affect things like needing fewer “environment” licenses or leveraging economies of scale. Ensure that SAP doesn’t charge you extra for additional development and testing systems in the cloud, for example, if you end up needing many copies for a large consolidation project – negotiate development and testing environments as part of the package.
• If your strategy involves switching away from SAP in part (perhaps using Salesforce for CRM or Workday for HR), consider how to scale down your SAP licenses accordingly. SAP won’t give money back for unused licenses, but if you foresee moving a function off SAP, consider not locking into a 5-year subscription for that piece. Or ensure your contract allows you to drop a certain number of users if a defined business unit is migrated off. Learn more about S/4HANA Licensing Migration Paths.

In all cases, communication is key: your licensing architect (you, in this role) should be at the table for strategic IT and business planning discussions.

When the company discusses acquiring, divesting, entering a new market, or launching a new digital initiative, you should ask: “How will our SAP licensing handle that?” By aligning licensing plans with strategy, you turn licensing into a facilitator of change rather than a roadblock.

Moreover, SAP tends to be more cooperative if they know a big business change is happening – they’d rather adjust the relationship than see you falter or consider alternatives. Use that to create a win-win: your company moves forward smoothly, and SAP retains a happy customer (at a fair price).

Red Flags and Deal Killers – Mistakes That Cost Millions

Even experienced negotiators and IT leaders can inadvertently make choices in SAP licensing deals that later result in significant cost increases.

Let’s highlight some red flags and outright mistakes that are known “deal killers” – the kind that cost enterprises millions in regret. By identifying them now, you can avoid them:

• Agreeing to Vague Contract Language: If your contract has fuzzy terms, you’re inviting trouble. Phrases like “SAP can periodically adjust fees based on usage” or “Indirect use not included unless otherwise agreed” are ticking time bombs. One major red flag is any undefined metric – e.g., if it says you’re licensing some SAP service “based on peak concurrent users” without specifying how that’s measured. Always pin it down. Insist on definitions for everything (what is a “user”, what is “indirect access”, how exactly “peak” is calculated, etc.). Many multi-million dollar disputes trace back to loose wording that SAP later interprets in its favor. If SAP resists clarification, that’s a red flag in itself – they may be intentionally leaving it grey. Don’t sign until it’s clear.
• Not Insisting on Dual-Use Rights During Transition: We mentioned this earlier – failing to obtain written permission to run ECC and S/4HANA in parallel during migration. This mistake can result in significant costs, including duplicate licensing fees or compliance penalties. Enterprises have been hit with audits for keeping ECC live for reporting or fallback after they thought they’d switched to S/4. If you don’t negotiate this, SAP’s default stance is that you need licenses for both environments. Always get a documented hall pass for any overlap period needed. Failing to do so is a deal killer that can double your costs during the migration timeline.
• Overlooking Indirect Use in Cloud Contracts: Some executives assume that by moving to RISE (cloud) everything is magically taken care of, including indirect access. It’s largely true that RISE bundles a lot, but if your contract doesn’t explicitly mention digital access or if you have atypical high-volume interfaces, you could still get caught out. Mistake: not documenting specific third-party systems and confirming they’re allowed. For example, if you have an e-commerce site funneling orders to S/4, include in the contract that such usage is considered authorized and included. If you gloss over that and down the road there’s a policy change, SAP could say, “Oh, that scenario wasn’t covered.” It might not happen often, but given the stakes, clarify it. Never assume – always confirm in writing what is included.
• Ignoring the “Shelfware Maintenance” Problem: After a major purchase, companies often allow unused components to linger. The mistake is continuing to pay maintenance on software you aren’t deploying. That’s money for nothing – and it adds up year after year (22% of the license price, compounded by any support fee increases). This is a silent budget killer. Proactively identify shelfware and either terminate it (if the contract allows and you’re past any lock-in period) or negotiate with SAP to replace it with something more useful. Don’t just let it slide because it’s “too hard” to address – SAP isn’t going to volunteer to reduce your bill; you have to initiate that. I’ve seen companies spend millions over a decade on licenses for, say, SAP SRM or APO that they never fully implemented, simply because no one raised the issue.
• Vetting Only the Price, Not the Terms: Perhaps the biggest strategic mistake is focusing solely on the purchase price and discount, while overlooking the contract terms. A seemingly great deal (75% off!) can be nullified by a clause that, for example, fixes that price for only the initial year and then allows SAP to re-price later, or that requires you to buy a certain amount of additional licenses by a future date regardless of need (yes, SAP sometimes puts in “growth commitments” or phased purchase requirements). These are hidden deal killers: you think you’ve locked a low price, but fine print commits you to spend more or lose the discount later. Always read the contract in full (or have licensing-savvy legal counsel do it). Look out for obligation clauses, any mention of audits or true-ups, and future pricing language. Flag anything that seems to limit your flexibility or may incur additional costs later. Often, you can negotiate those out if you catch them – SAP might remove a growth clause if you push, for instance – but after signing, you’re stuck.
• Failing to Engage Stakeholders: This is more of a process mistake, but it can kill deals or lead to bad ones. If procurement, IT, and business units aren’t on the same page, SAP can exploit that. For example, suppose your procurement team negotiates blindly without knowing future user counts or project requirements. In that case, they might cut licenses that IT needs, resulting in a shortfall and potentially necessitating emergency purchases later. Or, if IT bypasses procurement and promises SAP a deal by a certain date (because they want the new system to be live), you lose commercial leverage. Alignment is crucial: ensure all internal stakeholders are aware of the plan, consulted on their needs, and sign off on the final terms. A breakdown here often results in either overbuying (to appease everyone’s worst-case scenarios) or under-scoping (ignoring someone’s needs). Both scenarios cost money – either upfront or in unplanned expansions.
• Letting the Deal Get Rushed: SAP sales reps are masters of creating urgency (“This quarter’s discounts are the best you’ll ever get! Executive approvals might not align if we wait!”). Rushing can lead to mistakes, such as failing to check calculations, forgetting to include a necessary component, or accepting SAP’s assurances without verification. A rushed deal might also mean you didn’t receive competitive bids or have alternatives evaluated (perhaps a partner-hosted S/4 was cheaper than RISE, but you didn’t fully compare them due to time constraints). If you find yourself rushing, pause and take a moment to reflect. Unless you truly have a time-critical go-live, it’s better to extend negotiations than to lock into a suboptimal contract. Sometimes, simply slowing down can lead to SAP coming back with a better offer, as mentioned.
• No Exit Strategy: Signing a long-term cloud deal without thinking about exit is a mistake. If, after 5 years, you decide not to renew RISE (maybe you opt for on-prem or another solution), what’s your plan? If you gave up perpetual licenses, you could be left with nothing. Always have an exit strategy. For instance, negotiate that if you don’t renew, you have the right to convert to on-premise licenses (sometimes SAP will allow a conversion of your subscription into a perpetual license at a fee). Or at least ensure that you maintain ownership of the data and a window for transition. Not an immediate cost, but lack of exit can cost dearly in renewal negotiations (SAP will know you can’t leave, and thus they can hike prices).

Being forewarned about these red flags means you’ll handle SAP discussions with eyes wide open. Each of the above mistakes has caught companies off guard – but now you’ll be ready to spot and avoid them.

In SAP licensing, what you don’t know can hurt you. So make sure you do know – scrutinize everything, question assumptions, and never hesitate to seek expert second opinions on major deals. A little caution and diligence can save millions and countless headaches in the long run.

Actionable Recommendations

For CIOs and CFOs facing S/4HANA licensing decisions, here are no-nonsense recommendations to protect your budget and sanity:

• 1. Inventory and Optimize Before You Commit: Before signing any S/4HANA deal, do a thorough license inventory of your current SAP usage (if you’re an existing customer). Use SAP’s License Administration Workbench (LAW) or similar tools to see how many users are active and what they do. Clean up dormant users. This ensures you know your real needs.
  Many have reduced their required FUE count by 30-50% through internal optimization before moving to S/4​​. If you’re new to SAP, be critical when estimating users—get business involvement to classify roles (don’t let an SI or SAP dictate the numbers).
• 2. Beware the Trade-In: If you’re moving to RISE from ECC, understand the trade-in: SAP may offer credits for your existing licenses, but you effectively give up your perpetual rights. Ensure the business case truly justifies the swap.
  Once you’re in subscription land, you can’t easily return without repurchasing licenses. If you have a reasonably modern ECC that works, consider if you truly need RISE, or if a traditional S/4HANA conversion (keeping licenses) might serve you better in the long run. Don’t be caught by the shiny “RISE” branding – measure it in dollars and control.
• 3. Nail Down Indirect/Digital Access in the Contract: Do not leave indirect access ambiguous. If you move to S/4HANA, explicitly address digital access in your agreement. Either purchase the document licenses or include a clause that covers indirect use up to a specified volume. If SAP won’t budge, at least ensure you understand the cost exposure. One strategy is to negotiate a cap – e.g., if an audit finds indirect use, fees will not exceed $Y (or you will receive a discount on future purchases). Never assume it’s free. Clarify it in writing.
• 4. Leverage Tiered Pricing and Growth Provisions: As noted, SAP’s pricing has sweet spots. Work those angles: If you anticipate growth, negotiate it now. For example, “We need 500 users now, but likely 700 in 2 years – lock in the 500-user price for up to 700 users.” Or if you’re near a tier, push into it for a better per-unit cost.
  Also, consider negotiating renewal caps (e.g., a renewal price increase capped at the CPI or a single-digit percentage increase). SAP often requests 5-7% increases; try to cap it at a lower rate.
  If you’re going with RISE, negotiate the cloud infrastructure sizing transparently—ensure you know what size system (vCPUs, RAM) they are providing and have the right to increase it if needed (with predefined costs). Bake in as much predictability as you can.
• 5. Don’t overlook database licensing: S/4HANA runs on HANA. If you opt for on-premises deployment, consider choosing between runtime and full-use HANA databases. Runtime is cheaper, but it cannot be used for non-SAP data or custom analytical workloads.
  Many have been burned by using HANA for more than allowed and have faced huge bills. If you need flexibility, opt for full-use HANA licenses.
  Consider whether you need HANA for that side of the data; a secondary warehouse might be a better option. SAP handles HANA licensing in the cloud; however, if you plan to extract a large amount of data to other systems, please check if any restrictions apply.
• 6. Plan for Audits – Self-Audit Regularly: Treat SAP license compliance as an ongoing task, not just an annual one. Assign an internal team or utilize a third-party service to conduct quarterly checks on user counts, engine usage, and document counts.
  If you’re over, address it before SAP does (e.g., remove unneeded users, or plan true-up budget if genuinely required). If you’re under, that’s fine – ensure no unauthorized usage. Document your self-audits – it shows good faith. During contract negotiations, you can sometimes negotiate fewer formal SAP audits if you maintain certain controls (although not always; it’s worth trying).
  Either way, never ignore an SAP audit request – engage early, get expert help to reconcile their findings with your own, and don’t sign off on any results until you’re certain. Many audit disputes arise from misunderstandings that could be corrected with better internal records.
• 7. Consider Third-Party Support if Staying On-Prem: If you choose the perpetual route (or even stick on ECC for a while), know you aren’t forced to pay SAP maintenance forever. Firms like Rimini Street provide third-party support at 50% of SAP’s maintenance fees, and can support ECC well past 2027. SAP dislikes this, but you should still evaluate it as a CIO or CFO.
  Third-party support can save millions if your system is stable and you don’t need SAP’s upgrades.
  Just weigh the pros and cons: SAP does not offer new enhancements, but you get support for what you have and can reallocate the savings elsewhere.
  And importantly, staying on supported status with a third party can buy you time to migrate on your terms without pressure from SAP’s deadlines.
• 8. Negotiate Everything (and Benchmark): Arm yourself with knowledge before entering SAP licensing talks. Use the benchmarks above and consult with your peers to inform your decision. SAP sales reps respond when they know you have alternatives and insight.
  Some blunt tactics include obtaining quotes from SAP competitors, such as Oracle and Microsoft, to use as leverage. Make SAP earn your business. And if you’re moving to S/4 because you have to (ECC end of support looming), don’t show your hand – SAP knows many customers feel trapped.
  Show them you’re willing to delay or consider alternatives. That often yields better discounts or incentives. In a competitive scenario, achieving a discount of 50-70% off the list price is a common occurrence. Insist on clarity—get the pricing details in writing for user counts, FUE, etc., so you can make model changes.
• 9. Align Licensing with Deployment Strategy: This is a strategic note: Determine if a phased rollout can help reduce licensing costs. If you won’t roll out S/4HANA to all business units on day one, you could start with fewer users and add more later. Structure the contract to allow for this (e.g., commit to 300 users now, with the option to add 200 at the same discount next year).
  Don’t pay for all 500 from day 1 if only half the company joins in years 2 or 3. SAP will push for enterprise-wide deals; you can push back and phase it. Just be mindful of any time-bound conversion credits. For example, SAP might offer 100% credit if you convert now, but only 60% if you do so later – factor that into your decision.
• 10. Keep an Eye on “RISE 2.0” or New Programs: SAP licensing is not static. They introduce new bundles or offers, such as “GROW with SAP” for midmarket companies or future AI service bundles.
  Stay informed through SAP user groups, such as ASUG and DSAG, as well as independent advisors. Sometimes a new program can be leveraged even if you’re already in a contract – e.g., if SAP later offers more flexible terms, you could renegotiate at renewal.
  Also, always watch for changes in SAP’s support policy (such as the 2027 ECC deadline, which was recently extended). These can drastically change the urgency and negotiation power in your journey.

Negotiating a Better S/4HANA Deal

SAP is known for its high list prices but also for being open to negotiation. Savvy enterprises routinely achieve discounts of 30–50% or more in value concessions.

To optimize your S/4HANA contract, treat it as a strategic negotiation with SAP.

Here are some strategies and an example from the field:

• Audit and right-size before you buy: Before signing a new S/4HANA contract (especially if you’re an existing SAP customer), conduct an internal audit of your current usage. Often, companies find 15–30% of their named users are inactive or over-licensed. Cleaning this up ensures you aren’t buying licenses for “ghost” users. For example, one global manufacturer discovered hundreds of redundant user accounts on their old SAP ERP; by eliminating them and adjusting license types (downgrading some power users to a lower tier), they shaved 20% off the initial S/4HANA license quote. Essentially, go into negotiations knowing exactly how many users you truly need and of what type. SAP’s initial proposal might over-estimate users or assume all are full Professional users – push back with data.
• Leverage timing and competitive pressure: SAP sales teams have quarterly and annual targets to meet. The end of SAP’s quarter or fiscal year is when they may be most flexible to close a deal. Plan your negotiation cycle to align with these periods if possible. Also, don’t be shy about comparing other options – even if you intend to stick with SAP, having a credible quote from Oracle or Microsoft, or at least the implication that you might delay or consider alternatives, gives you leverage. Enterprises have used this to secure bigger discounts or extra products in the bundle. It’s common to aim for at least 50% off SAP’s list price on licenses. In some cases, much deeper discounts are attainable, especially if you’re moving from a competitor or expanding your SAP footprint significantly.
• Take advantage of trade-in programs: If you already own SAP licenses (for example, ERP ECC 6.0 or Business Suite), ask about conversion credits toward S/4HANA. SAP periodically offers programs (like voluntary licensing exchanges) to encourage customers to migrate. You might get credit equal to your remaining license value or maintenance base. A real-world scenario: a large retail company negotiated its S/4HANA subscription as part of RISE by trading in its legacy ERP licenses – SAP gave it credit for 100% of those licenses’ value because it migrated early, effectively lowering the new subscription cost by millions. Be aware that these offers can be time-bound or have strings attached (such as committing to a multi-year cloud contract). Evaluate the long-term implications: trading perpetual rights for a discount on subscription can be wise, but ensure you won’t regret losing those old licenses if plans change.
• Negotiate contract terms, not just price: Price is only one aspect. Push for flexible terms that protect you. For instance, include clauses that allow for a mid-term adjustment of user counts or FUEs without incurring punitive fees (especially if your business may downsize or undergo M&A). Cap the rate of subscription increase on renewal (e.g., no more than 3% annually). If you need additional environments (such as a test system or a disaster recovery instance), negotiate them upfront at little to no cost. Clarify how upgrades and new features are delivered. For on-prem, you might negotiate the ability to swap some licenses for others if your needs shift (within the S/4 product family). For cloud services, ensure transparency on what happens if you exceed your usage – is there a grace period, or will you be automatically billed? Everything important should be documented in the contract to avoid surprises.
• Address indirect use head-on: As mentioned earlier, decide how you want to handle indirect or Digital Access at negotiation time. Don’t leave it ambiguous. If SAP’s proposal doesn’t mention it, bring it up and ensure that the solution (whether it’s document licenses or named user licenses for external parties) is included in writing. You could negotiate a one-time fee for digital access or insist on a certain volume of free documents based on your use case. By making it part of the deal, you essentially protect yourself against future audit claims related to this issue. This has become a common point of contention in recent years due to high-profile customer audit disputes.
• Plan phased rollouts and growth: You might not go live with all users on day one. Try to phase your license consumption to match your deployment schedule. For example, start by paying for 300 users in year one, with an agreed price to add the next 300 in year two when additional regions or divisions go live. This way, you’re not paying for unused capacity in the interim. Similarly, if you anticipate growth (for example, by planning to acquire a company or expand headcount), negotiate a pre-agreed price for additional users/FUEs in the future. Locking in the price now can avoid a scenario where you need more licenses later and SAP charges the then-current (possibly higher) rates.
• Document everything and involve experts: Ensure the final contract documents all discounts, special terms, and side agreements. If SAP promised you 100 free hours of consulting or a fixed price for extra FUEs next year, it needs to be in writing. Given the complexity, many enterprises engage a third-party licensing advisor or legal counsel experienced in SAP deals. These experts can identify tricky clauses or areas that a typical team might overlook. Their insight (or benchmarking data on what other companies paid) can easily pay for itself in the savings you gain. Even if you don’t use external advisors, involve your internal stakeholders – including IT, procurement, and finance- to review the drafts. A unified approach will ensure you cover technical needs, commercial terms, and financial impacts.

By negotiating assertively on both pricing and terms, companies often save millions over the life of an S/4HANA contract. SAP expects savvy customers to negotiate; the first quote is rarely the best.

The vendor may initially push for a fast commitment (especially with quarter-end pressure), but remember that you have leverage too – the power to choose the timing, scope, or even to defer the project.

Use that leverage to maximize the deal’s value.

Read SAP S/4HANA and HANA Database Licensing – Runtime vs. Full Use.

Checklist: 5 Actions to Take

1. Establish a Cross-Functional Team & Baseline Usage:

Form a team with IT, procurement, and finance stakeholders to manage the S/4HANA licensing process.

Begin by auditing your current SAP environment (or ERP usage) to baseline the number of users, their roles, and identify areas of inefficiency (such as inactive users). This provides a clear picture of the requirements.

2. Evaluate Licensing Options and Define Requirements:

Analyze which S/4HANA deployment model fits your business. Compare on-premises, cloud, and RISE in terms of cost, control, and strategic fit. Determine your must-haves: e.g., do you need to keep data on-prem for compliance, or are you aiming for a cloud-first strategy? Determine an initial user count and project a 3-5 year growth rate. Draft a requirements document covering desired license types (or FUEs), additional components (analytics, industry solutions), and any integration needs that might require indirect access licensing.

3. Engage SAP (and Alternatives) for Quotes:

Reach out to SAP for an initial proposal based on your requirements, but also consider getting information from other ERP vendors or SAP partners for reference. Timing is key – if possible, engage with SAP’s sales team when they’re motivated (end of quarter/year) to get a more aggressive offer. Collect and compare the proposals, and be ready to push back on any elements that seem overpriced or unclear.

4. Negotiate the Contract Thoroughly:

Enter negotiations with a data-driven strategy. Use your internal analysis to counter SAP’s user counts or recommended package. Negotiate the unit prices (aim for deep discounts), but equally focus on contract terms: ensure there are no unlimited audit liabilities, set caps on future price increases, include a clear clause for digital access, and outline how additional users or modules will be priced. Involve your legal team to review terms such as liability, termination, and SLA if it’s a cloud-based deal. Iterate with SAP until you are satisfied that both the cost and terms are competitive and aligned with your interests.

5. Finalize and Implement Governance:

Once the contract is signed, establish governance for ongoing license management. Assign an owner to monitor license usage (perhaps the IT asset management function) to track FUE consumption or named user counts regularly. Implement processes to reclaim licenses when employees leave or to review roles as business processes change. Also, schedule periodic meetings between IT, procurement, and finance to review the S/4HANA costs and usage—this keeps everyone aligned and prepared to address any issues (like approaching an FUE limit or needing additional licenses) proactively rather than reactively.

FAQ

Q1: What are the main SAP S/4HANA licensing options available, and how do they differ in cost structure?
A: The primary licensing options for S/4HANA are: (a) On-Premise Perpetual Licensing – you buy the software upfront and pay annual support fees; (b) Cloud Subscription – you pay a recurring subscription (annual/quarterly) for S/4HANA as a service, which includes the software and infrastructure; and (c) RISE with SAP – a special bundle where S/4HANA is provided as a SaaS package with cloud hosting and services under one contract. Cost-wise, on-premise is a big upfront expense (CapEx) plus ~22% per year of that cost for support, whereas cloud and RISE are ongoing operational expenses (OpEx) that spread the cost over time. On-premise might be cheaper if you use the system for a long duration (since you own the license indefinitely), while cloud/RISE offers lower upfront cost and faster deployment, but can end up more expensive over, say, 5–7 years. We strongly recommend comparing the total cost of ownership for each model throughout 5 to 10 years to determine which one best suits your budget and strategy.

Q2: How are S/4HANA user licenses categorized, and what do they roughly cost?
A: Traditionally, SAP categorizes users by roles/level of usage. The common categories are Professional User (full access to all features – the most expensive), Limited/Functional User (access to specific modules or tasks – lower cost), and Employee Self-Service/User (very limited usage for occasional tasks – cheapest). While SAP’s official price list is not public, indicative prices are likely to be in the range of $3,000–$6,000 per Professional user (one-time license for on-premises) or around $200 per user per month in a cloud subscription. Limited users might be around a quarter of that cost. In the new cloud contracts, rather than per-user pricing, SAP often uses the Full Usage Equivalent (FUE) metric – for example, 1 Professional user = 1 FUE, and several Limited users together also equal 1 FUE. As a result, you might be quoted, say, 50 FUEs to cover your user population instead of 100 named users of various types. The key to cost planning is to accurately estimate the number of users in each category or FUE weight, and be aware that all these prices are typically negotiable. Large enterprises often negotiate significant discounts (50% or more off the list price), resulting in an actual price paid per user that is often much lower than the initial quote.

Q3: What hidden costs or pitfalls should we watch out for in S/4HANA licensing?
A: There are several areas to be cautious of. Indirect access (now addressed via Digital Access licensing) is a major one. If you have non-SAP systems or customer portals interacting with S/4HANA, ensure you’re licensed for this either by user or by document count, as failure to do so could lead to an audit surprise. Another is the inclusion of additional modules or “engines” – certain functionalities (such as advanced warehouse management and an environmental health and safety module) may not be included in the base license and require extra fees based on usage metrics (such as transactions and revenue). Database licenses for on-premise S/4HANA can also be a hidden cost – S/4HANA requires HANA, and if you need a full-use HANA license (to use the database for more than just S/4), that incurs an additional cost. Also, keep an eye on support costs and price increases. Maintenance fees tend to increase over time if not negotiated, and cloud subscriptions often include built-in escalations. Finally, implementation and integration costs are not included in the license contract but are very real – a budget can be blown if you don’t anticipate the consulting and project expenses needed to use the software you’ve licensed. Always factor those in when justifying the investment.

Q4: How can we negotiate better terms and reduce our S/4HANA licensing costs?
A: Preparation and timing are your friends. First, go in with a clear understanding of what you need (user counts, modules, etc.) – this prevents over-buying. When engaging with SAP, try to do so when they are eager to close deals (end of quarter/year) to secure their best offers. Don’t accept the first quote; SAP expects negotiation. Use any leverage you have – for instance, if you’re coming from a legacy SAP system, ask for migration credits, or if you’re considering Oracle, mention that as a competitive pressure. Some companies form internal negotiation teams and even bring in external experts to benchmark and drive for greater results. Important levers include increasing discount percentages, securing extra rights or products, obtaining price protections on renewals, and clarifying the terms surrounding indirect use. Also, consider committing to a longer term or larger scope only if it yields a better deal that you need – for example, a five-year commitment might get you a bigger discount than a three-year one, but be sure you’re ready to stick with SAP that long. In summary, treat it like any major vendor negotiation – come informed, compare options, and don’t be afraid to counteroffer multiple times.

Q5: What should the CIO, CFO, and procurement focus on, respectively, during S/4HANA license planning?
A: Each of these leaders has a different perspective, and all are important. The CIO (and IT team) should focus on ensuring the licensing model and terms align with the technology strategy and operational needs. That means verifying that the contract covers the necessary usage (e.g., if you require a disaster recovery environment or a developer license, it should be included), and planning for how to monitor license compliance from a technical standpoint. The CIO will also consider performance and scalability, ensuring that the licenses (and underlying infrastructure, especially in the cloud) can handle the company’s workloads. The CFO will be most concerned with the financial impact, including the total cost over the lifecycle, how it affects the profit and loss (P&L) statement (CapEx vs. OpEx), and whether the investment yields a positive return on investment (ROI). The CFO’s team will model different scenarios to ensure affordability and compare options (for example, what does a 5-year on-premises cost look like versus a 5-year cloud subscription). They will also want predictability, so they’ll focus on budgeting for maintenance or subscription fees and avoiding any uncapped liabilities. Procurement is positioned in the middle, acting as the negotiator; they will focus on securing the best possible commercial terms – maximizing discounts, favorable payment terms, and contract protections. They also coordinate the RFPs or competitive checks, handle communication with SAP’s sales team, and ensure that legal terms (with the help of legal counsel) don’t expose the company to risk. In short, the CIO prioritizes fit and functionality, the CFO focuses on cost and value, and procurement concentrates on price and contract security. By each focusing on their respective domain while collaborating, they can collectively ensure that the S/4HANA licensing deal aligns with the company’s objectives without any surprises.

Read our SAP Rise Negotiation FAQs.

Read about our SAP License Optimization Service.

Why Enterprises Choose Redress Compliance for SAP License Optimization

Do you want to know more about our SAP License Optimization Service?