SAP S/4HANA licensing works as follows:
- User-Based Licensing: Licenses are generally user-based, with different levels of professional, functional, and productivity use.
- HANA Database License: A Separate license for running the SAP HANA database.
- Digital Access: Covers indirect or digital access, like automated systems or third-party applications.
- Transition Options: Options for existing SAP ERP customers to transition to S/4HANA licenses.
- Cost Structure: License costs can vary depending on the type and usage, with a focus on optimizing license allocation.
Read CIO Playbook: SAP S/4HANA Deployment Models.
SAP Licensing for S/4HANA
SAP Licensing for S/4HANA is a complex landscape with multiple models and metrics that global enterprises must navigate carefully.
CIOs, CFOs, and procurement leaders need to understand how on-premise licenses, cloud subscriptions, and SAP’s new Full Usage Equivalent (FOE) metric differ in terms of cost and flexibility.
This advisory note provides an overview of S/4HANA licensing options (on-premise vs. cloud), explains key cost drivers and risks (like indirect access fees), and offers practical tips to optimize your SAP S/4HANA licensing strategy for maximum value and minimal risk.
What is SAP S/4HANA? (A Brief for Business Leaders)
SAP S/4HANA is SAP’s next-generation ERP system – the successor to SAP ECC. It runs on the in-memory HANA database and is designed for real-time processing and analytics.
The digital core can run your finance, supply chain, sales, and other key operations within a single integrated system.
S/4HANA comes in two flavors: run it on-premises (in your data center) or use cloud editions delivered as SaaS.
For CIOs and CFOs, S/4HANA represents a major IT and financial commitment – a move that often involves rethinking your licensing model, ongoing costs, and vendor relationship.
Read SAP RISE Negotiations: A Guide for CIO and Procurement.
S4/Hana Licensing Models: On-Premises vs. Cloud vs. RISE
SAP S/4HANA offers several licensing models, each with distinct cost structures and implications for your IT and finance strategy.
Choosing the right model is crucial:
- Perpetual On-Premise Licensing: You purchase S/4HANA software upfront as a capital expense (CapEx) and run it on your infrastructure. This one-time license fee can be substantial, followed by annual maintenance (~20–22% of license cost) for support and updates. In return, you get indefinite usage rights and full control over the system’s deployment and upgrade timing. Example: A company might pay $1 million upfront for on-premises S/4HANA licenses, plus approximately $200,000 per year in support. However, the customer also bears costs for servers, storage, and IT staff to operate the system.
- Subscription Cloud Licensing: You pay an annual or monthly subscription (OpEx) to use S/4HANA hosted in the cloud. This could be the public S/4HANA Cloud or a private cloud (e.g., SAP HANA Enterprise Cloud). The subscription typically bundles the software, infrastructure, and basic support in one recurring fee. Upfront costs are low or zero, and SAP manages the underlying hardware and updates. The trade-off: if you stop subscribing, you lose access to the software. This model offers flexibility and faster innovation (automatic updates), but over a long period (5+ years) the cumulative subscription fees can exceed the cost of owning licenses.
- RISE with SAP (All-in-One SaaS Bundle): RISE (introduced in 2021) is SAP’s comprehensive cloud offering that packages S/4HANA Cloud (which can be a private or public edition) together with hosting, technical services, and support under one contract. It’s marketed as “business transformation as a service”, simplifying procurement into one agreement and potentially including migration tools or credits for existing licenses. RISE is a purely subscription-based platform and often utilizes the FOE/FUE metric (explained below) instead of traditional named users. It can ease the move to the cloud with one hand, but it also locks you into SAP’s ecosystem. You typically must convert or retire your old licenses, and you’ll face minimum contract commitments (e.g., a baseline number of users or usage that you cannot exceed). RISE’s convenience comes with less flexibility to drop components or switch providers down the road without re-negotiating.
Each model has trade-offs. On-premise gives you greater control and can be cost-effective if used over a long horizon (since after the upfront purchase, you only pay maintenance).
Cloud subscriptions offer a lower initial cost and greater agility, but the ongoing fees can accumulate and may end up being higher after several years.
For example, a 5-year Total Cost of Ownership (TCO) analysis often shows that cloud vs. on-premises costs break even around year 4 or 5 – beyond that, owning licenses might become cheaper if you efficiently utilize what you have purchased.
Meanwhile, SAP claims RISE can reduce TCO by ~20%, but you should validate this against your scenario.
The key point is to align the licensing model with your company’s financial strategy: does a CapEx (capital expenditure, or asset purchase with depreciation) or an OpEx (operating expenditure, or pay-as-you-go service) model make more sense?
Many enterprises model out 5–10 year costs for each option before committing, ensuring that the chosen model meets both IT requirements and budget expectations.
Read Negotiating with SAP: A CIO’s Playbook.
User Licensing and the FOE Metric (Full Usage Equivalents)
Licensing costs for S/4HANA are heavily influenced by the number of users and the manner in which they access the system.
In traditional on-premise licensing, SAP uses Named User categories – each user is assigned a specific license type based on their role (e.g., Professional, Functional/Limited, or Employee Self-Service).
Each category has a different price, with Professional users being the most expensive and self-service users the cheapest.
For instance, a Professional user license on-premises might cost around $3,000–$6,000 (one-time), whereas a Limited user license might be $500–$1,500.
In a cloud subscription, these costs may translate to roughly $200 per month or more for a Professional user, compared to $50–$100 per month for a Limited user.
The key is to match each employee with the right license type. You don’t want to pay for a full Professional license when someone only needs basic functionality.
In the cloud and especially under RISE contracts, SAP has introduced the Full Usage Equivalent (FUE) metric, sometimes informally referred to as FOE.
This is essentially a pooled licensing model that moves away from a one-license-per-user approach.
Instead, you buy a certain number of FUEs, and different types of users consume a fraction of an FUE based on their usage level.
Read SAP S/4HANA Pricing and Cost Optimization.
One FUE is defined as one “full” user in terms of usage capacity.
For example, in SAP’s current model, 1 Advanced user = 1.0 FUE; a Core user might count as 0.2 FUE (meaning five such users equal 1 FUE), and a Self-Service user might be 0.033 FUE (30 such users per 1 FUE).
This unified metric is designed to simplify licensing by allowing you to purchase a pool of capacity instead of micro-managing user counts in each category.
In practice, it provides flexibility to reallocate usage, for example, by reducing the usage of heavy users and adding light users, which may balance out within your FUE allotment.
However, FOE/FUE comes with new management challenges.
Enterprises need to classify each user correctly (e.g., Advanced, Core, Self-Service) so that total FUE consumption stays within the contracted amount. If you exceed your FUE allocation, you’ll need to true-up (buy more), and if you drastically reduce users, you generally cannot go below the contracted minimum.
For CIOs and license administrators, tracking FUE usage requires robust governance – tools to monitor authorizations and user counts – because compliance is now measured in aggregate.
The good news is that it can prevent the old issue of “shelfware” (unused licenses sitting idle), as the pool can be reassigned.
Still, the bad news is it’s easy to over-allocate or miscalculate if you assume, for example, that many users are light when they perform advanced tasks that should count more heavily.
In short, SAP Licensing for S/4HANA in the cloud era shifts focus from named users to usage equivalence, and you must adapt your license management accordingly.
Read SAP S/4HANA Cloud (RISE) vs. On-Premise Licensing.
Impact of Licensing on Cost, Flexibility, Upgrades, and Audit Risk
Your choice of licensing model directly affects the total cost of ownership, the flexibility of reallocating or reducing licenses, your rights to upgrades, and your audit exposure.
Here’s how:
- Total Cost Profiles: The classic CapEx vs. OpEx trade-off is between perpetual and subscription services. On-premise (Perpetual) services have a high upfront cost plus approximately 20% annual maintenance.
Owning licenses can be cheaper over a 5— to 10-year period if you amortize the upfront cost, but only if you stick with SAP in the long term. Cloud Subscription/RISE spreads costs annually and includes infrastructure.
By bundling infrastructure and support, SAP often claims that RISE is 20% cheaper TCO than on-premises, but be cautious. Those calculations assume you fully utilize what you pay for and include hard-to-quantify benefits.
In reality, for years 4 and beyond, RISE can become more expensive than on-premises if you can run a stable system with lower incremental costs.
Also, RISE contracts often have annual escalators. For budgeting, model the total cost of ownership (TCO) over a 5-year period for each option. Include infrastructure, internal support, and potential cost of future growth or upgrades. - Flexibility in Adjusting Licenses: With perpetual licenses, once you buy, you own – but if you over-bought (known as “shelfware”), that money is essentially lost. You can’t easily “sell back” to SAP, though SAP has offered some exchange programs to swap unused licenses for new products.
In theory, subscription models (including RISE) allow more flexibility up or down, but read the fine print: SAP’s contracts often fix your user count (or FUE count) for the term or have strict limits on reducing subscriptions. For example, SAP’s FUE model has minimums and doesn’t let you go below them mid-contract. In practice, reducing the number of users in a subscription typically occurs only at renewal time, and even then, SAP may enforce minimum commitments.
RISE vs. Traditional: RISE’s all-in-one contract means that you may have to terminate everything if you want to drop a component (say, moving to a different cloud). Traditional perpetual licenses give you more commercial flexibility – you could move to third-party support, pause projects, or only renew maintenance on critical users, etc., albeit with trade-offs.
RISE is a bundle with a high switching cost, whereas perpetual licensing gives you some leverage (you own a version of the software). - Upgrade Rights: With on-premises perpetual licenses, you receive upgrade rights as long as you continue to maintain the license. If you stop maintenance, you’ll be stuck with your current version and receive no new updates. With subscription and RISE, upgrades are typically included and pushed automatically in cloud editions.
This means less worry about paying extra for new features—they’re part of the service. However, automatic upgrades (especially in public cloud SaaS) mean less control over when changes occur, which may force you to absorb new costs, such as testing and retraining, on SAP’s schedule.
Key consideration: If your business values control and stability over always having the latest version, a private option (either on-premises or RISE private cloud, where you have more control over upgrade timing) may be preferable. - Audit and Compliance Risk: SAP is notorious for license audits. The licensing model influences what they audit you for. On-prem named user licenses: SAP will audit how many users of each type you’ve assigned in the system vs what you purchased. Any indirect usage (non-SAP systems accessing SAP) can trigger an audit finding if not properly licensed.
Cloud subscriptions (RISE/FUE): SAP will audit your user counts and classifications. If you exceed your contracted FUEs or use a higher level of access than allocated, you will be billed accordingly. They will also check indirect document usage, even in S/4HANA (digital access), as that could be billable if it exceeds entitlement. Audit risk tends to increase when licensing is misunderstood.
Many companies have been caught by the “Indirect Access trap” in SAP ECC, which S/4HANA attempts to mitigate with digital access. However, you must actively adopt this model, or the old rules will hold you back.
Another risk area is the misclassification of users under FUE (e.g., counting some heavy users as “core” when they should be classified as “advanced”). In an audit, SAP can recategorize them, increasing your FUE count.
Bottom line: Regardless of the model, maintain diligent compliance records. Regularly run SAP’s license administration tools (LAW) and if on cloud, review user roles vs contract. The cost of a true-up after an audit can be millions if, for example, you unknowingly allowed 50 extra Professional users or a high volume of unlicensed documents. Proactive internal audits are crucial for avoiding unpleasant surprises.
Read SAP S/4HANA RISE: Contract and Licensing Challenges.
Key Cost Factors and Hidden Pitfalls
Beyond the basic license fees (whether user-based or FUE-based), several additional factors can significantly impact your total cost and risk.
CIOs, CFOs, and procurement must be vigilant about these pitfalls in S/4HANA licensing:
- Indirect Access & Digital Access: This is one of the biggest “gotchas” in SAP licensing. Indirect access refers to the use of SAP data or functionality by non-SAP systems or external users. A classic example is a customer portal or a third-party application that creates a sales order in SAP. In the past, SAP’s stance was that every user or device indirectly causing transactions needed a license. This led to surprise audit bills for many companies. To address this, SAP introduced the Digital Access model for S/4HANA, which licenses this scenario based on documents (e.g., the number of sales orders and invoices generated by external systems). You can either buy document “packs” or pay an annual flat fee (often ~10% of your ERP contract value) for unlimited documents. Tip: Ensure your S/4HANA contract explicitly covers digital access – either include a specific number of documents or negotiate a fixed fee for digital access. Never assume that connecting a third-party app to SAP is free of charge. If you ignore this, you may face a multi-million-dollar compliance claim during an audit.
- Engine and Add-On Licenses: While the core S/4HANA modules (Finance, HR, Procurement, etc.) are typically covered by user licenses, certain specialized functions or industry solutions utilize separate licensing metrics (often referred to as “engines”). For example, you might license SAP Extended Warehouse Management based on the number of warehouse transactions, or SAP Treasury based on the number of accounts, or an industry-specific component based on revenue or number of customers. These metrics are unrelated to user count and can add significant cost if not anticipated. Additionally, remember that S/4HANA runs on the SAP HANA database – for on-premise deployments, you need a HANA license. SAP offers a cheaper HANA runtime license (typically ~15% of the application’s value), which restricts the database to be used only for SAP applications, and a full-use HANA license (costlier, often based on memory size in GB) if you plan to run non-SAP data on the same HANA instance. Misusing a runtime license (e.g,. plugging a third-party app into your HANA database) can lead to huge penalties, so choose the right type from the start. In Cloud S/4HANA or RISE, the HANA database is bundled; however, if you plan for heavy integrations or additional data warehousing, confirm if there are any additional charges for that usage.
- Support and Upgrades: With on-premise licenses, you’ll pay annual maintenance (support) fees of about 22% of your initial license cost. This gives you access to support and software updates. Note that SAP has been known to periodically raise support fees (for instance, a general increase occurred around 2024), so build an escalation (inflation) factor into your cost projections. In cloud subscriptions, standard support is included; however, if you require enhanced support (such as SAP MaxAttention or premium support tiers), these come at an additional cost on top of the subscription. Also, be mindful of contract clauses: cloud agreements may have built-in price escalators (e.g., a 3% annual increase after the initial term). Always negotiate caps on any year-over-year subscription increases.
- Implementation and Ancillary Costs: The price of the software license or subscription is only part of the picture. Implementing S/4HANA is a major project – you will likely spend as much or more on system integrators, consultants, data migration, testing, and training as you do on the software itself. While these implementation costs are not included in the license contract, they are essential for CFOs to budget for. Sometimes SAP may offer incentives that tie into licensing (for example, a certain number of free consulting hours, or credits for cloud infrastructure, as part of a large deal). Be sure to evaluate the full package. Don’t get blinded by a discount on licenses if the project services will cost five times the software price – both need to be planned together.
- Contract Terms and Audit Risks: The fine print of your SAP contract can have major cost implications. Pay attention to audit clauses – SAP has the right to audit usage, and non-compliance fees at list price can be very painful. Ensure you understand how true-ups work and try to negotiate some protections (e.g., if an audit finds you are 10% over on users, consider paying at your discounted rate, not the full list rate). Also, be aware of termination and renewal terms. On-premise, once you buy, you own the license perpetually, but if you stop paying maintenance, you lose support (and the ability to upgrade easily). In the cloud, if you don’t renew, you lose the software access entirely, which means high switching costs if you ever want to exit. Negotiate renewal terms upfront, for example, by specifying a cap on the increase in renewal pricing, such as not exceeding the CPI or a few percentage points. If you have existing SAP licenses that you’re not using (shelfware), consider asking about conversion credits when migrating to S/4HANA. SAP often runs programs to credit some value of old licenses toward new cloud deals – but these offers get worse over time (the earlier you migrate, the more credit you get). Ensure that any such arrangements are documented so that you can accurately track the savings.
Read SAP S/4HANA Licensing: Models, Costs, and Strategic Considerations for CFOs and IT Leaders.
RISE vs Traditional Licensing – Commercial Flexibility
It’s worth highlighting the differences in commercial flexibility between RISE and a traditional licensing approach (perpetual + maybe your cloud hosting):
- Bundling and Lock-In: RISE bundles everything into one subscription.
This is convenient (one throat to choke, as SAP says) but also locks you in tightly. If you’re unhappy with one element (say, SAP’s cloud performance or cost), you can’t just move the infrastructure to another provider without changing the whole contract.
Traditional licensing allows you to separate concerns – for example, you can host on a more affordable cloud or switch support to a third party while still utilizing your licenses. With RISE, SAP is your landlord; leaving means moving out completely. - Contract Negotiation: Traditional SAP deals often have more negotiable pieces – you can negotiate license discounts, maintenance terms, or even a separate deal with a cloud provider, for example.
RISE deals are often take-it-or-leave-it bundles with less term flexibility (SAP has standardized RISE contracts).
Additionally, RISE may have stringent terms regarding renewal increases and limitations on how the software can be used (only in SAP’s cloud).
Traditional licenses give you “ownership” leverage – you can threaten to stay on old versions or drop maintenance to push for better terms. With RISE, you lose your ERP if you stop paying, so SAP holds more power. - Financial Impact: With perpetual licenses, once you buy, that asset is on your books, and the ongoing costs (maintenance, infrastructure) are somewhat predictable. However, SAP maintenance tends to increase by around 3-4% per year and can rise further if you lapse and then resume.
With RISE, SAP can increase subscription fees at renewal; if you depend on them, you may have to swallow the increases. Also, remember that by moving to RISE, you surrender any sunk cost value of your existing licenses.
CFOs should weigh the write-off of existing licenses and the cost of implementation investments. RISE might appear favorable in year 1 (due to incentives or credits), but the net present cost could be higher over the decade.
There’s also an opportunity cost: money spent on RISE cannot be used for other IT initiatives. If overspending compared to a leaner alternative, that’s money wasted. - Upgrade and Innovation Flexibility: RISE keeps you on track for innovation with cloud-first updates and integration to SAP’s platform. For example, suppose SAP releases new technology (such as AI or advanced analytics) and bundles it together.
In that case, RISE customers may get easier access (though possibly at an additional cost – e.g., SAP has been known to charge a 30% premium for certain AI services under RISE).
Traditional license customers may not have access to some cloud-only innovations unless they purchase additional cloud subscriptions.
However, traditional customers can invest in third-party or custom solutions instead of waiting for SAP to provide them. With RISE, you’ll likely consider SAP’s offerings first for compatibility because you’re already writing that big check to SAP annually.
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.
Still, having ballpark figures helps in planning and negotiations (don’t let SAP tell you “it depends” without giving any reference points).
Here are some indicative benchmarks:
- On-Premise Perpetual License Costs: SAP doesn’t publicly list S/4HANA prices, but historically, a Professional User list price has been in the $3,000–$6,000 range per user (one-time, plus 20% annually).
Limited or Employee users might be ~$500 – $1,500 each. For example, a large on-premises S/4HANA deal for 500 users (100 Professional, 400 Limited) might cost $1 million upfront for the license. Annual maintenance would be approximately $ 200,000. Hardware and infrastructure are separate, which could cost a few hundred thousand dollars per year in a large environment.
In perpetual deals, significant discounts (50% or more) off the list price are common, especially when migrating from ECC. SAP often gives credit for your ECC licenses. Important: If you’re an existing ECC customer, SAP may offer conversion programs or credits to reduce the S/4 cost – always ask about this, as there could be “contract conversion” deals to carry over some value of what you’ve already paid. - Cloud Subscription (Public Cloud SaaS or IaaS): In the cloud, pricing is typically based on a per-user-per-month or per-year model.
A rough range: A Professional user might be around $200–$250 per user per month ($2,400–$3,000 per year), while a Limited user might be around $50–$100 per month ($600–$1,200 per year).
We saw an example of 10 users (5 Pro and 5 Limited) costing around $20,000/year—$2,500 per user per year for Pro and $1,000 for Limited. Larger volumes often get discounts. Additionally, the subscription fee can include both the base software fee and the user fee. For instance, you might see a contract with a fixed base fee (e.g., $100,000 per year for the S/4HANA system) plus variable per-user fees. It varies case by case.
With more standardization, public cloud editions may have more rigid pricing, whereas HEC (private cloud) deals are more customized and often higher in cost due to the dedicated resources they require. - RISE with SAP (FUE-based) Pricing: RISE pricing is in FUEs. SAP has a tiered pricing structure (not publicly available but mentioned by experts). For example, 1 FUE could be priced around $700 per month at low quantities, dropping to around $50 per month at very high quantities.
One public example: 135 FUEs cost approximately €716 per FUE per month (in the DACH region, list pricing). At 5,000 FUEs, the cost was approximately €3,600, and at 6,001 FUEs and above, it dropped to approximately €2,800. This shows how dramatically the unit price falls with scale. In practice, a mid-sized company requiring 1,000 FUEs might spend hundreds of thousands of dollars per year.
Always push SAP to show you the tier that fits your size, and use that to negotiate. Also, note that RISE includes infrastructure, which, if you were pricing DIY, might incur additional costs (e.g., running S/4 on AWS for 1,000 users might be $X per month – with RISE, it’s bundled, but that doesn’t mean it’s the most cost-effective approach). - Indirect/Digital Access Costs: SAP sells digital access in blocks (sometimes 1 document costs around $0.50 or packs of 1,000 documents, etc.). A common offer SAP made was indirect or document access for a flat percentage uplift on your maintenance or subscription.
For instance, some deals for unlimited digital access have been around 10% of your S/4 license value per year. If you stick to named user licensing for indirect use, expect to pay for extra users (which can be very expensive if the external user count is high).
Generally, if you have significant third-party integrations, budgeting for a digital access license is wise. Discuss a predictable model with SAP, rather than facing pay-per-document surprises. - Support Costs and Extras: Standard SAP support (now referred to as “SAP Enterprise Support”) is approximately 22% of the yearly license net price for on-premises deployments.
They also offer “Premium” support tiers at higher percentages. If you plan to use SAP’s Cloud ALM, Solution Manager, or other tools, check if they need separate licenses (usually not, but some advanced monitoring tools might).
Upgrades are included in maintenance or subscription plans. However, suppose you’re on-premises and need to upgrade your HANA database hardware or purchase extra HANA memory licenses due to growth. In that case, that’s an additional cost to consider (HANA full-use licenses are expensive, often tens of thousands per 64GB block).
These ranges are broad. SAP will rarely give you a straight price list; everything is quote-based. Use peers, SAP user groups, or consultants to benchmark the quotes you get.
The key is to identify all components (software, database, infrastructure, support, and indirect use) and ensure the offer covers them or you budget for them.
Then negotiate each piece of the bundle assertively.
Don’t shy away from pushing back – SAP reps have significant discount authority, especially at the end of quarters or years.
Remember: The first quote SAP gives is almost always high.
They expect a negotiation.
Read CIO Playbook: Navigating Licensing for New SAP S/4HANA Embedded Features.
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 on a regular basis. 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 over a period of 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 P&L (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.
