SAP S/4HANA & HANA Licensing Guide
Why S/4HANA Licensing Is a Whole New Game
Migrating from SAP ECC to S/4HANA isn’t just a technical upgrade; it’s a licensing transformation. SAP ECC (the legacy ERP) will lose mainstream support in 2027, forcing customers to decide how to re-license their enterprise systems for the future.
This means you can’t assume your old ECC licenses simply carry over. S/4HANA requires new licenses or conversions, and the rules of the game have changed significantly.
Under ECC, most organizations managed a mix of named user licenses and add-on (engine) licenses. S/4HANA shifts this model.
On-premise S/4HANA still uses perpetual licenses and named users (albeit with updated categories), but many customers are now considering SAP’s cloud options.
In the cloud (for example, RISE with SAP or S/4HANA Cloud), SAP introduces the Full User Equivalent (FUE) model and subscription pricing.
In short, the licensing metrics, pricing structure, and contract terms for S/4HANA are fundamentally different from the ECC era.
CIOs and procurement leads must approach S/4HANA migration with fresh eyes, focusing on licensing as a core part of the migration strategy, rather than a minor afterthought.
S/4HANA Licensing Models: On-Premise vs Cloud vs Hybrid
When planning S/4HANA, you have to choose between on-premise, cloud, or hybrid licensing models, each with different cost structures:
- On-Premise (Perpetual License + Maintenance): This traditional model is similar to the ECC model. You purchase S/4HANA software licenses upfront (CapEx) and pay annual maintenance (typically ~20-22% of license value) for support. You’ll license named users (e.g., Professional, Functional users) and any needed engine metrics. The advantage is control and the ability to use licenses indefinitely; however, you assume responsibility for infrastructure and upgrades. The cost is heavily front-loaded, and you must manage your own hardware or hosting. On-prem S/4HANA licensing is best if you want to extend the familiar ECC-like model and have infrastructure in place. However, it still requires adopting S/4HANA’s updated user categories and possibly new product licenses.
- Cloud Subscription (RISE with SAP or S/4HANA Cloud Editions): In the cloud model, you don’t buy the software outright – you subscribe to it (OpEx model). SAP’s RISE with SAP offering, for example, bundles the S/4HANA software, the HANA database license, infrastructure (hosting on SAP or hyperscalers), and support services into a single monthly or annual fee. You typically commit to a term (e.g., 3-5 years subscription). Pricing is often based on Full User Equivalents (FUEs) or solution size rather than traditional named users. The cloud model simplifies contracts (one contract covers everything) and offloads system management to SAP, but you relinquish some flexibility. If you stop paying, your rights to use S/4HANA end. Subscription licensing can sometimes be more expensive over a long period, but it offers faster deployment and includes all maintenance/upgrades provided by SAP.
- Hybrid Deployments: Many enterprises adopt a hybrid approach during transition – for example, keeping some S/4HANA systems on-premise and others in the cloud, or phasing modules gradually to the cloud. In a hybrid scenario, you might maintain some perpetual licenses for certain components while subscribing to cloud versions for new capabilities. This can provide flexibility (you choose the optimal model per system) but also complexity: you’ll need to manage both license models in parallel. SAP may offer integrated agreements for hybrid deployments, but it’s crucial to clarify how licenses interact. For instance, if you have S/4HANA on-prem for your core ERP but use a cloud subscription for specific add-ons or regional instances, ensure you’re not double-paying for overlapping functionality. Hybrid models require careful contract negotiation to avoid gaps or redundant costs, but they can be a practical stepping stone toward an eventual full cloud move.
Understanding Full User Equivalent (FUE) Licensing in S/4HANA Cloud
One of the biggest shifts in S/4HANA Cloud licensing is the move from classic named-user licenses to the Full User Equivalent (FUE) model.
Instead of buying a fixed number of each user type, you purchase an aggregate pool of FUEs that represent your total user capacity.
Each user is categorized by role, which consumes a fraction of an FUE based on how intensive their usage is:
- Advanced Users – count as 1.0 FUE each. These are power users or broad-access users (think: finance managers, supply chain leads) who use many parts of the system.
- Core Users – count as 0.2 FUE each. These users have more limited or specific functional access (e.g., an analyst or planner in a specific module). They use the system regularly but with a narrower scope than Advanced users.
- Self-Service Users – count as ~0.033 FUE each. These are casual users who perform very light tasks (e.g., employees who just enter timesheets, travel expenses, or view pay stubs). They have minimal impact on the system.
(In addition, developer or technical users are usually weighted higher – often 2.0 FUE each – due to their elevated access, though these are a smaller subset.)
Under this model, you might purchase, say, 100 FUEs total and allocate usage among any number of users as long as the weighted sum doesn’t exceed 100. For example, 100 FUEs could cover 100 Advanced users (100 × 1.0), or 500 Core users (500 × 0.2 = 100), or 3,000 Self-Service users (≈ 100 FUE), or a mixed population thereof.
This pooled licensing gives flexibility: you don’t worry about buying specific license types up front, and you can adjust user roles as needs evolve.
However, it also means every user counts in some fashion (even those who were formerly “free” or ignored under ECC licensing now consume a small portion of FUE).
Tips to Right-Size FUE Usage: Managing an FUE model requires vigilance so you don’t overspend or misclassify users.
Keep these best practices in mind:
- Assign Minimal Access First: Start each user with the smallest role that fits their job. If someone only needs self-service capabilities, don’t give them a higher access role. Each promotion in access level (e.g, from Core to Advanced) can multiply that user’s licensing cost.
- Prevent Authorization Creep: Regularly audit user permissions. If a user is accidentally granted broader rights than necessary, they might bump into a higher FUE category unknowingly. For instance, a user meant to be Core (0.2) could end up classified as Advanced (1.0) if extra transactions are added to their role. Tight governance on role design and a periodic review of who has what access will catch these issues early.
- Leverage Low-Cost Roles: Make full use of the Self-Service user category for employees who have only occasional or lightweight interactions with S/4HANA. Dozens of self-service users collectively equal the cost of just one advanced user. Shifting marginal users into self-service roles wherever possible is a big cost saver under FUE.
- Monitor FUE Consumption: Treat your FUE allocation like a cloud resource meter. SAP provides tools to report how many FUEs you’re consuming based on current user assignments. Check this regularly (monthly or quarterly). If you see a sudden spike – e.g., a department added several Advanced users – investigate and correct the course if needed. Proactive monitoring ensures you stay within your purchased FUE pool and can defer purchasing additional capacity until necessary.
Overall, the FUE model can be more cost-efficient and flexible than the old named-user approach, especially for organizations with a large number of occasional users.
But it shifts responsibility to you to manage roles carefully. Mismanaging FUEs (by over-provisioning access) can quickly erode the cost benefits.
SAP HANA Database Licensing: Runtime vs Full-Use Explained
Every S/4HANA system runs on SAP’s HANA in-memory database, but licensing HANA itself is a separate consideration.
There are two primary ways to license HANA for S/4:
- HANA Runtime License (SAP Application Limited Use): This is a discounted license to use HANA only for SAP applications like S/4HANA. It’s attractive because of its cost model – often priced as a percentage of your SAP application’s value (a commonly cited figure is ~15% of the S/4HANA software license price). For example, if your S/4HANA on-prem licenses cost $1 million, a runtime HANA license might be around $150,000 as a one-time fee (plus annual support on that fee). The runtime license is cheaper because you agree not to use HANA for anything except SAP’s own software. In other words, you can’t build custom apps on it or hook up third-party tools to query data directly at the database level. It’s ideal if you intend HANA to be just the behind-the-scenes engine for S/4HANA and related SAP modules. Most traditional SAP ERP customers start here to minimize database costs.
- Full-Use HANA License (Enterprise Edition): This license lets you use HANA as a general-purpose database platform for any application (SAP, custom, third-party, etc.). Instead of being tied to S/4 license value, full-use HANA is typically priced by hardware capacity – especially memory size. You purchase HANA in fixed memory blocks (for example, in 64 GB increments). If you need a 256 GB HANA instance, you would buy enough blocks to cover that (4 × 64 GB). The cost can run quite high – HANA is one of the more expensive databases on the market per GB of RAM. The benefit, of course, is flexibility: you can develop native HANA applications, use advanced analytic engines, or integrate non-SAP data freely. Full-use is chosen by companies that see HANA as a central data hub beyond just S/4HANA, or who anticipate building custom solutions on the HANA platform.
In a cloud subscription like RISE with SAP or S/4HANA Cloud, you don’t license HANA separately – the database cost is bundled into your subscription. SAP will typically size your environment (by memory or throughput tier), and that determines how much HANA capacity you get.
For example, higher subscription tiers correspond to larger allowable database sizes. This bundling is convenient (one less license to manage), but it means you should be aware of any usage caps. If your database grows beyond the included size, you might need to move to a higher (more expensive) subscription tier.
Hidden Cost Alerts for HANA:
Watch out for scenarios that can increase your HANA licensing costs unexpectedly:
- Scaling Up Memory: With HANA’s memory-based pricing (for full-use licenses), any growth in data can force a license expansion. If your S/4HANA database grows faster than anticipated (say you accumulate more transactional data or need to retain data longer), you may have to purchase additional HANA blocks. Rightsizing and archiving data can mitigate this – a strong data tiering/archiving strategy isn’t just good IT practice, it’s a licensing cost control measure.
- High Availability and DR: If you set up a secondary HANA instance for high availability or disaster recovery, clarify the licensing terms. Often, SAP will allow a passive standby HANA instance without a full license fee (especially if it’s purely for failover). However, this is something that needs to be negotiated and documented. Otherwise, you might be on the hook to license your HA/DR servers’ memory as well, effectively doubling costs. Never assume a secondary system is free – always confirm the policy or get it in writing.
- Switching from Runtime to Full-Use: Some companies start with a runtime license and later realize they need a capability that’s not allowed (for example, direct SQL access for a custom reporting tool, or using HANA’s advanced analytical libraries). Upgrading to full-use mid-project can be very expensive, since you’ll essentially be buying a new license. To avoid surprises, evaluate future use cases early: if there’s any chance you’ll want to use HANA beyond vanilla S/4HANA, factor that into your licensing choice from the start. Sometimes it’s cheaper to go full-use upfront (with the right discounts) than to make a forced switch later under time pressure.
In summary, opt for HANA runtime if you’re certain HANA will only underpin SAP software and you want to minimize cost.
Choose full-use HANA if you need flexibility for custom developments or broader data use. Regardless of the choice, keep a close eye on memory usage and system architecture so you can anticipate and mitigate any cost implications well in advance.
Navigating Add-On Packages & Engine Licensing in S/4HANA
One promise of S/4HANA is a simplified licensing structure; however, add-on “engine” licenses are not eliminated.
In ECC, many functional areas (especially industry solutions or specialty modules) require separate engine licenses. S/4HANA’s core license (often called Enterprise Management or Digital Core) now includes a lot of functionality by default that used to be extra.
For example, basic warehouse management and basic transportation management are included in the S/4 core.
However, certain advanced capabilities still come as additional licenses:
- Legacy Modules and Engines: If your business uses modules like Warehouse Management (WM/EWM), Environmental Health & Safety (EHS), Treasury and Risk Management, or industry solutions (Utilities, Oil & Gas, etc.), check how they’re licensed in S/4HANA. Some “classic” engines have S/4 equivalents that remain separately licensed. For instance, S/4HANA includes basic warehouse operations, but Extended Warehouse Management (EWM) in advanced scenarios may require an engine license, measured by warehouse volume or transactions. Similarly, core HR is located in S/4, but SAP Payroll may still be licensed on a per-employee or per-payroll-processing-metric basis. The key is not to assume everything is free in S/4HANA – many high-value or high-volume functions are still monetized as add-ons.
- Rationalize During Migration: Moving to S/4HANA is an opportunity to review all the engines and add-ons you have been paying for. It’s possible that some legacy engines you licensed under ECC are now redundant or can be dropped. For example, if you had a separate ECC component for product safety or waste management under EHS, you might find S/4HANA provides sufficient functionality without needing the specialized engine. Conversely, if you truly need a separate engine (say, advanced planning or an industry-specific module), ensure it’s included in your migration plan and budget. Don’t automatically convert every engine license you have – assess if it’s still needed or if the volume of use can be reduced. This may involve business stakeholders deciding to retire certain processes or utilize standard S/4 functionality to avoid additional fees.
- Negotiation Tip: Use the migration project to negotiate better terms on engines you do need. SAP knows customers are evaluating what to carry into S/4. If an engine’s value to you is marginal, that’s leverage – perhaps SAP can bundle a basic level of that functionality into your deal or offer a discount to keep you using it. Also, if you’re moving to a RISE subscription, many engine metrics get encapsulated into the overall subscription (with defined limits). Ensure those limits cover your needs (e.g., if RISE includes rights to use EWM for up to X transactions or payroll for Y employees, confirm those numbers match your business). Challenge SAP’s default assumptions; don’t pay for an oversized engine license if your actual usage is modest.
Bottom line: scrutinize each add-on license in your current contract. S/4HANA’s cleaner core may let you shed some of them, which can significantly reduce costs and compliance headaches.
For those you keep, align them with actual usage and incorporate them into your S/4HANA contract with clear metrics and terms to avoid any surprises later.
Conversion Pathways: Product vs Contract Conversion Explained
SAP has introduced formal programs to help existing ECC customers transition their licenses to S/4HANA.
The two primary approaches are often referred to as Product Conversion and Contract Conversion.
Each has its own implications for flexibility, cost, and complexity:
- Product Conversion (License Swap): In a product conversion, you essentially perform a like-for-like swap of your current licenses to S/4HANA equivalents under your existing contract. You keep your SAP contract structure the same, including all the existing users and package licenses (just converting them into the new S/4 versions). SAP typically allows credits up to 100% of the original license value for this exchange – meaning if you already own an ECC module, you can get the S/4HANA edition of that module without paying for a brand new license (you’ve “pre-paid” via your ECC investment). Product conversion is low-disruption: your maintenance base remains the same, and any special discounts or contract terms you had carry forward. It’s often the quickest path to get S/4HANA rights because you’re not re-negotiating the entire contract. However, it has a big limitation – it’s usually a 1:1 conversion. You cannot drop licenses you don’t use (no reduction in shelfware), and you generally can’t mix in new products you didn’t have before without buying them separately. Essentially, you carry over any inefficiencies from your ECC license portfolio. If you were over-licensed in ECC, you’ll still be over-licensed after product conversion. It’s a “copy-paste” approach: stable and predictable, but not optimized.
- Contract Conversion (New Contract): Contract conversion means tearing up the old agreement and signing a completely new S/4HANA contract, using the value of your existing licenses as a credit toward the new purchase. Think of it as trading in your old car when buying a new one – you get some value for what you already paid, but you’re fundamentally getting a new vehicle (or in this case, a new license deal). The advantage here is maximum flexibility: you can restructure your entire SAP license portfolio. Maybe you decide to drop certain modules, add others, and right-size your user counts – all in one go. Unused ECC licenses (shelfware) can be exchanged for something more useful, or simply not renewed, thus cleaning out the dead weight. SAP will calculate a credit based on your current licenses’ net value or maintenance base and apply that to the cost of the new S/4HANA licenses. Often, SAP requires that the new contract’s annual value is at least as high as the old one (so they’re not losing revenue), but you might negotiate to keep any increase modest. The downsides: Contract conversion requires a greater effort in negotiation. You must carefully negotiate new terms and ensure no important usage rights from your old contract are lost. Also, because it’s a new contract, all your pricing and discounts reset to current SAP standards (which might be different from when you first bought ECC). SAP may bundle its newer licensing approaches (such as Digital Access or updated user definitions) that you need to understand fully before signing.
In summary, choose the path based on your goals:
Suppose you want minimal change and have a relatively efficient current license landscape. In that case, product conversion is a straightforward route that avoids rocking the boat (at the cost of carrying along any excess).
Suppose you need to optimize costs, drop unused licenses, or fundamentally realign your licenses with new business realities.
In that case, contract conversion gives you a one-time chance to renegotiate from scratch – just be prepared for the negotiation and ensure you maximize the credit for your past investments.
(A note on cloud transitions: SAP also offers a “Cloud Extension” policy, which is akin to a contract conversion but specifically allows you to trade in on-prem licenses for cloud subscription credits.
This is useful if you’re migrating to RISE or S/4HANA Cloud and want to offset subscription costs with the money you’ve already spent on perpetual licenses.
The strategy is to prevent double payment – you move the budget from maintenance to subscription. Always analyze SAP’s credit offers critically; make sure you’re receiving fair value for your existing licenses and not leaving money on the table.)
Brownfield vs Greenfield Licensing Strategies
Organizations often talk about brownfield vs greenfield in terms of system implementation, but the concept also applies to licensing strategy:
- Brownfield Licensing: This approach means reusing and adjusting your existing licenses as much as possible when you move to S/4HANA. If you’re taking a technical upgrade mindset (converting ECC to S/4 with existing processes), you likely want to do the same with licenses – i.e., leverage what you’ve already bought. A brownfield licensing strategy would involve cleaning up what you have (retire unused user accounts, terminate maintenance on truly dead shelfware if SAP allows, etc.) before the migration so that you enter S/4HANA with a leaner license set. Then you might pursue a product conversion or a targeted contract conversion that closely mirrors your old entitlements. The benefit is continuity and potentially lower immediate cost: you’re not buying a bunch of net-new licenses; you’re trying to make the most of sunk costs. Many organizations with heavy investments in ECC choose this route to avoid a sudden spike in spending. However, be wary – a pure brownfield approach can be a trap if your ECC licensing was inefficient. You might end up simply porting all the old complexity and bloat into S/4HANA. So, even in a brownfield scenario, do some spring cleaning. For example, if you have 1000 ECC users on paper but only 700 are active, address that discrepancy now. Brownfield licensing is about evolution, not revolution, with a focus on cost containment.
- Greenfield Licensing: This approach treats the S/4HANA migration as a fresh start from a licensing perspective (just as a greenfield implementation is a fresh start for business processes). Rather than being constrained by what you bought in the past, you re-evaluate your needs from scratch. Maybe your business has changed since those ECC licenses were purchased years ago – a greenfield licensing strategy asks, “If we were a new SAP customer today, what licenses (or subscriptions) would we buy?” In practice, this often means leaning towards a full contract conversion or even deciding to move to RISE with SAP as a new subscription, essentially throwing out the old SKU list. The advantage here is that you can potentially optimize a lot more: you purchase only what aligns with your future state, and you can negotiate a deal tailored to your current requirements (possibly getting modern discounts or cloud incentives from SAP). It’s ideal for organizations undertaking a major transformation – for example, consolidating multiple ERP instances, dropping old modules, or adopting new cloud services concurrently with the S/4 project. The greenfield licensing path, however, requires careful management of the financial impact. You must ensure you’re getting credit for legacy investments (or have written them off mentally), and be prepared for the possibility of higher annual fees if the new setup has more scope. It’s a reset, which can mean a higher starting cost, justified by a more efficient and future-proof structure.
In deciding between brownfield and greenfield licensing, consider the alignment with your technical migration strategy. Often, if you’re doing a system conversion (brownfield technical approach), a mostly brownfield licensing approach follows naturally, and similarly for greenfield.
But they don’t have to match exactly – some companies do a technical brownfield upgrade but still renegotiate a lot of their licenses (a hybrid approach) to optimize costs.
The key is to consciously plan your licensing strategy; don’t let it be an afterthought to the project.
Whichever route you choose, involve your IT asset management and procurement teams early so that licensing workstreams run in parallel with technical migration planning.
RISE with SAP: A Licensing Bundle in a Box
“RISE with SAP” is SAP’s flagship offering to lure customers into a cloud subscription model. It’s often described as “business transformation as a service”, but in licensing terms, it’s essentially an all-in-one bundle for your ERP needs.
Here’s what that means:
When you contract for RISE with SAP S/4HANA Cloud (Private or Public edition), you pay a single subscription fee that includes:
- The S/4HANA software licenses (for the digital core and usually a broad set of modules).
- The SAP HANA database license is included (no separate HANA purchase needed; your subscription tier covers a certain size of HANA).
- The infrastructure hosting (whether on SAP’s own data centers or a hyperscaler like Azure/ AWS managed by SAP). This covers compute, storage, backups, etc. for your S/4HANA system.
- Basic technical services and support are needed to keep the system running (updates, patches, and even upgrades to new S/4 versions are handled as part of the cloud service).
- In many cases, some SAP Business Technology Platform (BTP) services or credits, and other cloud services are bundled to sweeten the deal (like SAP Analytics Cloud licenses, etc., depending on the package).
In short, RISE shifts you to a subscription/OpEx model where SAP (and its cloud infrastructure partners) take over much of the operational responsibility.
Pros of RISE with SAP:
- Simplicity: You have one contract and one bill to manage. It can be easier to explain to the CIO/CFO as a unified “as-a-service” cost. There’s no need to separately license a database or pay a third-party data center – it’s all wrapped together.
- Always Current: Since it’s a cloud service, SAP ensures your system stays up to date. This reduces the burden on your internal IT for upgrades and might improve your access to the latest features.
- Faster Time to Value: Because it’s pre-packaged, deploying S/4HANA via RISE can be faster than a traditional on-prem project (in theory). SAP also often includes transformation tools or services in RISE to support the transition.
- Negotiation Leverage: SAP is pushing RISE aggressively, so customers often find better discounts or incentives to opt for this route (SAP prefers to report subscription growth). In some cases, you might get a more favorable deal under RISE than if you tried to piece everything together on-prem.
Cons of RISE with SAP:
- Less Flexibility: You’re committing to SAP’s predefined bundle and cloud environment. This means you have to abide by the limitations of that environment. For example, certain high-customization scenarios or integration choices might be constrained. If you have unique needs (specialized hardware, custom database tweaks, etc.), RISE might feel rigid.
- Potentially Higher Long-Term Cost: While RISE can reduce certain costs (like hardware investments, DB licenses), SAP’s premium for bundling and managing the service could make it more expensive over a 5-10 year horizon compared to self-managing, especially for large customers who could achieve economies in-house. It’s essentially paying SAP to be your host and operator, and that convenience has a price. Always run a TCO comparison – don’t assume RISE is cheaper just because it’s cloud.
- Lock-In and Contractual Constraints: When you sign RISE, you’re often in a multi-year contract. Getting out of a RISE deal or switching to another model is not trivial. Also, your negotiating leverage shifts: once you’re in, you rely on SAP for everything (application and infrastructure), which could make future price negotiations challenging. Be cautious of things like automatic renewal terms or price increase clauses after the initial term.
- Limited Modular Choices: In an on-prem world, you might decide not to license certain components or to use third-party alternatives. With RISE, you’re paying for a broad bundle whether you use everything or not. For example, even if you don’t use some embedded functionality, it’s baked into the price. There is some ability to tailor the subscription (you choose the number of users/FUEs and add-ons), but it’s less granular than traditional licensing.
- Migration of Existing Licenses: If you already have a lot of ECC or S/4 on-prem licenses, moving to RISE requires wrangling with your legacy contract. You don’t want to pay for RISE and still pay maintenance on old licenses you’re no longer using. Part of the RISE transition should include either converting those to cloud credits (via the Cloud Extension program) or placing them on hold. It takes careful negotiation to ensure you’re not double-paying. SAP’s default is that RISE is a new contract, so make sure to negotiate credit for your existing investments or a way to gracefully sunset your old licenses cost-effectively.
In summary, RISE with SAP can be a great simplifier and enabler for transitioning to S/4HANA, especially if your company wants a cloud-first strategy or doesn’t want to maintain its own IT infrastructure. But it’s not a one-size-fits-all panacea.
Go in with a clear understanding of what’s included, what’s not, and how it aligns with your long-term needs.
And like any SAP deal, get every commitment in writing – from performance SLAs to renewal caps – because once you’re locked into RISE, you want to avoid any “gotchas” that could drive up costs or limit your options down the road.
Related articles
- SAP HANA Database Licensing Explained: Runtime vs Full-Use and Costs
- Converting SAP ECC Licenses to S/4HANA: Migration Licensing Tactics
Key Cost Drivers & Optimization Levers
Understanding what drives cost in S/4HANA licensing will help you find the best optimization levers.
Here are the major cost components and how to manage them wisely:
- User Licenses and Role Mix: The composition of your user licenses (or FUE roles) is often the single biggest cost element. Heavy “Advanced” users cost more than lighter “Self-Service” users. Optimization tip: right-size every user’s license. Don’t give everyone an expensive license by default – categorize users by actual need. Continuously monitor usage and reclaim licenses from inactive users. If you’re on-prem, periodically run SAP’s user measurement reports to catch underused Professional licenses that could be downgraded. In the cloud, watch your FUE consumption. By keeping a tight handle on user classification, companies can trim licensing waste significantly (often double-digit percentage savings on user costs).
- HANA Database Size: The memory footprint of your S/4HANA system drives database licensing costs (for on-premise full-use licenses) and can influence your cloud subscription tier. It’s easy to overspend on HANA if you oversize your environment. Optimization tip: tune your data volume. Archive old data, use data tiering (store warm/cold data off in cheaper storage), and avoid unnecessarily large memory allocations. Also, carefully evaluate performance needs – don’t allocate a full 2TB HANA if 512GB will do for the first few years. A smaller HANA license saves money upfront and in support costs. If you anticipate growth, consider negotiating price locks for future HANA expansion to avoid additional costs when you need more memory.
- Engine/Module Licenses: Add-on engines (such as Treasury, EWM, CRM, etc.) and standalone products (like SAP Analytics or industry-specific solutions) often come with their own metrics and fees. These can form a substantial part of your SAP spend. Optimization tip: audit and rationalize engines. Identify which engines you’re paying for and how much of their licensed capacity you actually use. If you’re licensed for 10,000 employees on Payroll but only have 8,000, you might be able to reduce that metric (though SAP typically doesn’t let you drop down easily mid-contract; you may have to negotiate at renewal). Additionally, consider whether third-party solutions could replace expensive SAP engines or if newer S/4HANA features render some add-ons unnecessary. When negotiating S/4HANA licenses, push to bundle or include key engines in the core agreement to avoid a la carte pricing where possible.
- Parallel ECC and S/4 Operations: During your migration, you might run ECC and S/4HANA side by side for a while (development, testing, phased go-lives, etc.). If unmanaged, this can lead to double licensing costs – e.g., maintaining support on ECC licenses while also paying for S/4HANA licenses or subscriptions. Optimization tip: negotiate overlap terms upfront. SAP often provides “bridge” licensing arrangements: for instance, during a contract conversion, your ECC usage rights can continue for a defined period even as you move to S/4, without additional cost. If you’re moving to RISE, negotiate a clause to pause or reduce ECC maintenance fees once the new system is live, or get credits so you’re not paying full price on both at once. The goal is a seamless transition where you’re financially covered but not paying twice for the same business capabilities.
- Shelfware and Unused Entitlements: A silent cost driver is maintenance on licenses that sit unused (shelfware). In the ECC era, many companies overbought user licenses or modules and continued to pay annual support on them. Going into S/4HANA, that legacy shelfware will continue to drain budget if not addressed. Optimization tip: eliminate or repurpose shelfware. If you have redundant licenses, either use them to negotiate credit (in a contract conversion) or, if on-prem, consider terminating maintenance on them if SAP allows (note: SAP’s policies here are restrictive, often “all or nothing” on a license type, so plan carefully). At minimum, don’t convert shelfware blindly into S/4 – it’ll just become S/4 shelfware. A migration is the perfect time to shed the fat.
- Contract Terms and Pricing Protections: The fine print in your S/4HANA agreements can significantly impact costs. For example, cloud subscriptions might have clauses for price escalators in future years, or your on-prem license contract might allow SAP to raise support fees over time. Optimization tip: negotiate cost safeguards. Lock in long-term maintenance rates or caps (e.g., “maintenance will remain at 22% with no more than 3% increase every other year” or similar). For cloud, try to cap renewal increases or secure options to true-up additional users at pre-agreed discounts. Also, consider including flex clauses (like the ability to swap some licenses for others as needs change, or the right to expand an engine metric at a certain fixed price). A well-negotiated contract can save millions later by preventing “surprise” increases.
By focusing on these areas, you can optimize S/4HANA licensing costs without compromising on the technology benefits.
Many organizations discover that they can support the same business needs with a smaller, well-tuned license profile – but it requires active management, both during negotiations and throughout usage.
Compliance & Audit Risks in S/4HANA
Moving to S/4HANA doesn’t eliminate SAP license compliance concerns.
In fact, new licensing models introduce new types of audit risks that you must guard against.
Key areas to watch:
- Indirect/Digital Access: SAP’s infamous “indirect use” policy – where third-party applications or interfaces that create SAP transactions require licensing – still applies in the S/4HANA world. SAP now often uses a Digital Access model (charging by documents created, like sales orders, invoices, etc., generated by non-human or external systems). If you haven’t addressed this in ECC, the migration is a moment of reckoning. You might be offered a Digital Access license as part of your S/4 deal (sometimes with a certain number of free documents as an incentive). Don’t ignore indirect usage: analyze how other systems interact with S/4HANA (e.g., does your e-commerce site create an order in S/4? Does a mobile app query S/4 data?). Ensure you have the appropriate licenses for that. If you adopted SAP’s Digital Access Adoption Program in the past, carry those entitlements into the new contract. The risk of not addressing it is an audit finding later with hefty penalties for unlicensed documents.
- FUE Classification Audits: In a cloud or RISE scenario using Full User Equivalents, SAP can audit how you’ve classified your users. For example, they might check if some users labeled “Self-Service” are actually performing activities that make them “Core” or “Advanced” users. If your internal role management is lax, you could inadvertently be under-licensed (consuming more FUE than you purchased) – a situation that an audit will bring to light. The result would be a back payment or true-up for the excess usage. To prevent this, treat user classification seriously: maintain documentation of what roles correspond to which FUE category and periodically self-audit. It may also be worthwhile to use SAP’s own monitoring tools or third-party license management software to validate FUE counts before SAP does.
- Engine Usage Compliance: As noted, some S/4HANA functions are metric-based. Auditors will look at your actual usage of engines versus what you’ve licensed. If your contract says “Payroll engine for up to 5,000 employees” and you’ve grown to 5,500, that’s a compliance gap. Or if you’re licensed for an SAP CRM add-on for a certain number of customers and your database has more, that’s an issue. Mitigate this by implementing internal checks on these metrics. Many SAP engines have transaction codes or administrative reports that display current usage levels (e.g., the number of business partner records, the number of orders processed, etc.). Integrate those checks into your governance. If you spot an upward trend nearing your license limit, address it proactively – either by curbing use (if possible) or negotiating an extension of the licensed volume before SAP comes knocking.
- Contractual Compliance and Understanding New Terms: S/4HANA contracts come with updated terms and definitions. Some rules have changed compared to ECC contracts, including how third-party access is defined, how test systems can be used, and what you are allowed to do with developer licenses or virtualization. Your compliance team must thoroughly read the S/4HANA use rights. For instance, some customers assume they can use old ECC licenses for a sandbox while in transition – but unless it’s explicitly allowed under a conversion agreement, that could be a breach. Make sure every scenario (interfaces, backups, copies of production data in non-prod, etc.) is accounted for in your license grants.
- Audit Preparedness: SAP audits (License Audit or License Verification processes) will continue periodically (typically annually or biannually). With S/4HANA, ensure you are prepared to run the latest audit measurement tools (SAP LAW, USMM, etc.) and the specific Digital Access Measurement program if applicable. Given the complexity, many firms engage license management specialists or utilize tools to simulate an audit result in advance. The best defense is continuous compliance monitoring – don’t wait until an official audit to discover an issue. Treat your first year on S/4HANA as a learning period: perform an internal audit after a few months to ensure everything aligns with what you contracted.
In essence, a license-compliant S/4HANA environment requires the same diligence as ECC, with some new twists. By anticipating what SAP auditors look for and building compliance checks into your operations, you can avoid nasty surprises.
And remember, when negotiating your S/4 deal, you can sometimes include clauses to mitigate compliance risk – for example, clarifying gray areas or securing rights that are important to you (some companies negotiate carve-outs for specific indirect use scenarios, etc.). It’s better to hash those out upfront than to fight about them in an audit.
S/4HANA Licensing Strategy Checklist for CIOs
For CIOs and IT asset managers, here’s a quick checklist to ensure your S/4HANA licensing strategy covers all the bases:
- Map Your ECC Licenses and Usage: Inventory every SAP license you own today (users, engines, components) and how they’re being used. This baseline will guide what to convert, drop, or change. Know your current license spend and any shelfware percentages – it’s your starting negotiation chip.
- Evaluate On-Prem vs RISE (Cloud) Scenarios: Model the costs and implications of staying on-premise vs moving to RISE or other S/4HANA Cloud options. Include 5-10 year TCO, factoring in infrastructure, internal support, and potential cloud incentives. This dual scenario analysis gives you leverage – even if you prefer one model, showing SAP you could go either way can improve your bargaining power for discounts or favorable terms.
- Negotiate Renewal and Price Protections: Whether it’s maintenance fees or subscription rates, lock in caps on future increases. For on-prem, try to secure a cap on annual maintenance % or agree that your S/4HANA maintenance won’t escalate beyond standard. For cloud, negotiate that the subscription renewal after the initial term can only increase by X% or is pegged to a certain index. Also, if you need more users or capacity later, pre-negotiate the pricing for those expansions now (avoid paying full list price for future growth).
- Align Contract Duration and Project Timeline: Make sure your contract terms align with your deployment schedule. If you’re signing a RISE deal in 2025 but won’t fully cut over from ECC until 2026, ensure your ECC support is accounted for through the transition. You might need a clause for dual usage or a short-term extension. Also, avoid locking into a long subscription if you’re not confident in the timeline – better to have flexibility if the project is delayed. The contract should facilitate your migration plan, not rush or hinder it.
- Include Audit and Compliance Safeguards: Proactively address known risk areas in the contract. If indirect access is a concern, consider SAP’s Digital Access license and get a sufficient document quota included (or an agreement that current third-party interfaces are covered). If you’re unsure about FUE classifications, ask for an initial true-up grace period – for instance, an understanding that if in the first year you exceed FUEs because of misclassification, you can adjust without penalties. Also, document any special permissions (like using ECC licenses in parallel, or repurposing dev/test systems) to protect against future audit disputes. Basically, nail down the ambiguities now, in writing.
This checklist serves as a starting point for your review. Every organization’s situation is unique, so add items specific to your business (e.g., industry solutions, integrations, etc.). The main idea is to approach S/4HANA licensing with the same rigor as a major IT deployment – because it is one. A well-crafted licensing strategy will save money, prevent headaches, and give you confidence as you embark on the S/4HANA journey.
FAQ Section
Can ECC licenses be reused for S/4HANA?
No, you can’t run S/4HANA with your old ECC license keys. In practice, you must convert or migrate your licenses. SAP treats S/4HANA as a new product line, so ECC entitlements only carry over through formal conversion programs or credit toward new licenses. Don’t assume paying maintenance on ECC means you automatically get S/4HANA rights; you’ll need to execute a contract or product conversion to transition those licenses.
Is S/4HANA licensing more expensive than ECC?
It can be, especially if you simply migrate “as is”. S/4HANA often introduces new costs (e.g., HANA database, potentially higher maintenance base, or subscription fees). Many organizations experience a higher annual spend after migrating to S/4. However, S/4HANA also delivers more value – it includes more modules in the core and offers modern capabilities. If you optimize your license usage (and take advantage of S/4HANA’s efficiencies), the cost per business process might improve even if the raw license fee is higher. Plan and negotiate carefully; with the right sizing and model, you can keep cost increases reasonable.
Do named user licenses still apply under S/4HANA Cloud?
Not in the same way. In S/4HANA Cloud (including RISE), SAP uses the Full User Equivalent (FUE) model instead of traditional named user categories. You won’t be buying Professional, Limited, or ESS named users one by one; instead, you contract for a total FUE count and then allocate users into roles (Advanced/Core/Self-Service), which draw from that pool. Essentially, named users are replaced by the FUE metric in cloud subscriptions. (For on-prem S/4HANA, named user licensing does still exist, but the user categories are streamlined compared to ECC.)
What if we move from on-prem HANA to RISE with SAP?
When you switch to RISE, your database licensing shifts to SAP’s cloud bundle. Your existing on-prem HANA license would likely become unused (you won’t need it for the RISE-hosted system). It’s crucial to handle this in your contract: you may be able to trade in the on-prem license for credit or at least stop paying maintenance on it. Plan the timing so that you’re not paying for the old HANA and the new RISE subscription simultaneously. Also, ensure any special rights you had (for example, using HANA for a secondary application) are addressed – under RISE, those might require additional cloud services. In short, coordinate the retirement of the old licenses with the start of RISE, and get SAP to acknowledge the transfer to avoid double costs.
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