SAP Licensing Models
Executive Summary:
SAP offers multiple licensing approaches to meet enterprise needs.
Key options include traditional perpetual licenses for on-premises software and subscription models for cloud services. Effectively managing these licenses is key to controlling costs and staying compliant.
Many organizations operate in hybrid environments, combining both models.
SAP’s newest offerings (e.g., RISE with SAP) introduce simplified metrics like Full Use Equivalents (FUEs) to bundle cloud software, services, and infrastructure under a single contract.
Perpetual vs. Subscription Licensing
SAP historically sold software under a perpetual license model: a company pays an upfront one-time fee to own the software indefinitely, plus annual support (typically 18–22% of the license cost) for maintenance and updates.
In contrast, a subscription license model spreads costs over time as recurring fees (monthly or annual) that cover software usage rights and support.
Perpetual licensing entails higher initial CAPEX expenditure but can be cost-effective if usage is steady over many years. Subscription licensing shifts the spend to OPEX, reducing upfront cost and allowing flexibility to increase or decrease licenses as needs change.
Subscription fees can be more expensive in the long run than purchasing licenses outright, but they include continuous updates and outsourced infrastructure.
Cloud vs. On-Premise Models
Deployment choice influences the licensing model:
- On-premises SAP usually uses perpetual user licenses. The customer hosts the software on their own servers and is responsible for system maintenance, hardware, and upgrades. A separate database license (for SAP HANA or other databases) may also be required, and the company pays annual maintenance for support. This model gives full control over the environment, but also means the enterprise manages all infrastructure and updates.
- Cloud SAP – Uses subscription licensing. For example, SAP S/4HANA Cloud, SuccessFactors, or other SaaS offerings have an annual or monthly per-user fee. SAP (or a cloud provider) hosts and manages the application environment; updates/support are included in the subscription. Cloud licensing converts ERP software into an all-in-one service, trading off some control for reduced IT overhead and faster innovation (since new features roll out continuously).
Hybrid Licensing Environments
Many enterprises today use a hybrid SAP environment – running legacy systems on-premise while adopting newer cloud solutions.
For instance, an organization might keep core SAP ERP finance on-premise under perpetual licenses, but use cloud-based SAP Ariba or SuccessFactors on a subscription basis.
In a hybrid model, careful management is needed to avoid overlap and unexpected costs. Companies should maintain a centralized license inventory to track entitlements across on-prem and cloud systems.
It’s important to align contract terms and renewal dates so that you can negotiate holistically with SAP.
Ensure that users who move from on-prem to cloud are not double-counted with two licenses. SAP does offer programs like license conversion credits to help customers transition to the cloud, and leveraging these can optimize costs during a migration.
Overall, governance is key: establish clear internal processes to monitor usage in each system, re-harvest unused licenses, and maintain compliance with both perpetual license audits and cloud subscription terms.
RISE with SAP and Full Use Equivalents (FUE)
A major trend in SAP licensing is the move toward bundled cloud contracts like RISE with SAP.
RISE with SAP is a cloud subscription bundle with S/4HANA software plus the necessary infrastructure and services in one contract.
Instead of buying perpetual licenses and managing your own servers, you pay SAP an annual subscription for an all-inclusive hosted service.
Under RISE, SAP introduced Full Use Equivalents (FUEs) as a new licensing metric to simplify user counts. FUEs aggregate various types of users into a unified measure of consumption.
For example:
- Professional/Advanced User – ~1.0 FUE (full business user with broad access).
- Developer or Technical User – ~2.0 FUE (developers/support users count more due to deeper access).
- Functional/Core User – ~0.2 FUE (light or occasional user; about five users equal 1 FUE).
- Employee Self-Service User – ~0.03 FUE (very limited usage; ~30 self-service users per 1 FUE).
With this approach, an enterprise can mix different user roles if the total FUE consumption stays within the purchased entitlement. FUE-based licensing is only used in SAP’s cloud subscriptions (like RISE for S/4HANA Cloud).
On-premise deployments continue to use the traditional named-user model. This flexible model still requires oversight – if too many users shift into higher roles, the FUE tally can spike and force a higher subscription tier.
Recommendations
- Assess Fit for Subscription vs. Perpetual: Evaluate your organization’s needs. Stable long-term users may favor perpetual licenses (with lower TCO over time), whereas dynamic or growing environments might benefit from the flexibility of subscriptions.
- Negotiate RISE with Care: If considering RISE with SAP, scrutinize the contract. Ensure the included services and FUE quantities align with your needs, and negotiate room for growth without punitive costs.
- Maintain Hybrid Visibility: Implement tools and processes to track both on-premise and cloud license utilization in a hybrid licensing landscape. This prevents compliance gaps during transitions.
- Leverage SAP Programs: When moving to S/4HANA Cloud, use SAP’s conversion and extension programs (like license exchange or cloud migration credits) to convert unused on-prem investments into cloud subscriptions.
- Plan for Indirect Use: Monitor how third-party systems access SAP data even as models change. Adopt SAP’s Digital Access (document-based licensing for indirect use) if it fits your usage profile, but only after analyzing your actual document counts to ensure it’s cost-effective.
- Stay Educated on Licensing Changes: SAP frequently updates its pricing models (e.g., introducing FUEs). Review SAP’s licensing updates or engage experts annually so your contracts and compliance approach remain current.
- Budget for Maintenance vs. Subscription: When forecasting costs, account for the 18–22% annual maintenance on perpetual licenses and compare it against subscription fees. Moving to a subscription can sometimes be cost-neutral when factoring in avoided infrastructure and support costs.
