Common SAP Licensing Pitfalls and How to Avoid Them

Common SAP Licensing Pitfalls and How to Avoid Them

SAP’s software licensing is famously complex, covering a vast portfolio of on-premise solutions (such as SAP ECC or S/4HANA) and cloud services (including SuccessFactors, Ariba, and others).

With thousands of products and numerous license types and metrics, even large enterprises can make costly mistakes.

The stakes are high: unnecessary licensing spending drains IT budgets, while compliance errors can expose a company to hefty back-charges or legal disputes.

This article examines the most common SAP licensing pitfalls, spanning both traditional on-premise licenses and modern cloud subscriptions, and provides guidance on how to avoid them.

The goal is to help IT decision-makers and licensing professionals ensure their organizations stay compliant without overpaying by learning from these frequent missteps.

Over-Licensing and Underutilization

One of the most prevalent pitfalls is over-licensing – purchasing more SAP licenses or subscriptions than the business uses. In practice, this often results in underutilization, where many software capabilities or user licenses remain idle.

For on-premise SAP environments (ECC or S/4HANA), companies may purchase extra named-user licenses or module packages “just in case,” only to find that many aren’t needed in day-to-day operations.

In cloud scenarios, over-licensing can manifest as over-subscribing (for example, paying for SuccessFactors accounts for 5,000 employees when only 4,000 are active users). The result is wasted expenditure on maintenance fees or subscription costs for capacity that brings no value.

Why does over-licensing happen?

Due to uncertainty about future needs, aggressive sales tactics, or lack of clarity in usage requirements, companies often err on the side of buying “more than enough.”

For instance, an IT department might preemptively license additional SAP modules or extra user seats ahead of an anticipated project that gets delayed or scaled down.

In other cases, without granular insight into actual usage, firms renew their SAP agreements with the same or higher quantities out of habit, not realizing their utilization has decreased.

Real-World Scenario:

A global manufacturer negotiated an SAP license bundle for SAP S/4HANA that included 1,000 Professional User licenses.

A year later, an internal review found that only about 600 users logged into the system regularly; the other 400 licenses were never assigned or were tied to former employees.

This over-licensing meant the company was paying maintenance on 40% more licenses than it used, a form of “shelfware” that we discuss below. They could have saved substantially on support costs if they started with a smaller number and scaled up as needed or monitored usage more closely.

Overlooking Shelfware (Unused Licenses)

“Shelfware” refers to purchased software licenses that remain unused or under-deployed—essentially sitting on the shelf. This pitfall is closely related to over-licensing, but it highlights the ongoing failure to identify and either retire or repurpose idle licenses.

Many large SAP customers accumulate shelfware over the years due to changing business needs or project cancellations.

For example, a company might acquire licenses for a module, such as SAP CRM or Ariba, as part of a suite but never actually implement that module. The unused licenses remain in place, and the company continues to pay annual support unless action is taken.

It’s common for enterprises to discover that 10–30% of their SAP licenses are not being actively used, presenting a significant opportunity for cost savings if addressed.

Overlooking shelfware can occur due to poor visibility and inadequate governance. Unused licenses can go undetected, hidden in plain sight, without regular license audits or a centralized view of entitlements versus usage. Additionally, some organizations hesitate to terminate licenses due to contractual constraints or fear of needing them in the future.

Before 2013, SAP even prohibited the partial termination of maintenance on unused licenses, causing customers to pay for shelfware maintenance or face losing support on all their systems. (SAP later allowed partial termination of shelfware maintenance under certain conditions, acknowledging this widespread issue.)

The key point is that ignoring shelfware means paying for value you aren’t receiving – a direct hit to ROI.

Typical Scenario: A decade ago, an energy company purchased enterprise licenses for SAP BusinessObjects and SAP Supplier Relationship Management (SRM).

Over time, their analytics team transitioned to a different BI tool, and the SRM project was subsequently shelved; however, the licenses remained on the books.

These became shelfware – licenses never deployed in production. Years later, during a contract renewal, the company realized it had spent millions in support fees for these unused products.

This hard lesson led them to establish a practice of reviewing license usage annually and negotiating the removal of truly unused licenses from their contract at renewal time.

Misclassification of User Types

SAP’s user licensing model typically defines multiple user types (roles), each with different price points and usage rights—e.g., Professional User, Limited Professional, Employee Self-Service, etc.

A common pitfall is misclassifying users by assigning the wrong license type to a user or failing to adjust their classification as their role changes.

Misclassification can swing both ways:

• Over-assigning expensive licenses: Companies sometimes default to assigning high-level licenses to all users (e.g., Professional licenses to everyone, even those who only require basic access). This over-licensing, often resulting from misclassification, means paying for more capability than many users actually require.
• Under-assigning (misuse) of licenses: Conversely, some users perform activities that require a costlier license, but the organization mistakenly assigns them a cheaper license type. This under-licensing creates a compliance risk – during an audit, SAP may find that those users should have been on a higher license tier, leading to back charges.

Misclassification often stems from an inability to understand SAP’s definitions or outdated role information.

For example, an HR employee might have been given a low-level ESS (Employee Self-Service) license because they primarily viewed pay slips, but over time, their job expanded to include running HR reports and administrative tasks, which fall under the scope of a Professional license.

If the licensing team doesn’t catch this change, the employee is misclassified.

On the other hand, it’s common for companies to purchase only Professional licenses for simplicity, only to realize that many users (such as casual read-only users or employees simply clocking time) could have been assigned cheaper licenses.

Why it’s a problem:

Overpaying is an obvious waste, while under-licensing via misclassification is a compliance time bomb. In SAP’s eyes, any user without the appropriate license type is essentially unlicensed.

Suppose SAP audits your user list and finds 200 users assigned as “Limited” who execute transactions reserved for Professional users.

In that case, they can demand true-up fees retroactively for those 200 Professional licenses.

This recalculation happened to some early S/4HANA Cloud customers who misused the Full User Equivalent (FUE) model by classifying heavy users in a lower category to save credits, only to be found non-compliant when SAP recalculated the FUEs.

Example:

A large retailer discovered that all its store managers had been set up with Professional SAP user licenses. Upon analysis, these managers only used SAP to run daily sales reports and approve time sheets – activities that a much cheaper Limited-user license could cover.

The misclassification cost the company hundreds of thousands of dollars annually in unnecessary license fees. By right-sizing those users to the proper license type, they freed up the budget for other IT initiatives.

Another company took the opposite risk: they labelled a group of power users as “inventory clerks” to justify a lower license type.

This issue went unnoticed until an audit flagged users performing unrestricted transactions, revealing a compliance gap. The lesson is to align license type with actual usage and review these assignments regularly.

Ignoring Indirect Access Risks

Indirect access (indirect use) is when people or third-party systems use SAP’s data or functions without directly logging into the SAP system through the standard GUI.

Classic examples include:

• A non-SAP front-end (like a web portal or mobile app) that creates orders in SAP in the background.
• Third-party reporting or integration tools that pull data from SAP to display to users.
• External systems (e.g., a customer or supplier system) that query SAP via an interface.

Ignoring or underestimating indirect access is a major licensing pitfall, as several companies learned the hard way.

SAP requires licenses for indirect usage; historically, this meant that if 1,000 customers accessed SAP data through a non-SAP portal, they might all need to be covered by named user licenses, even if they never directly used SAP​. This came as a shock to many customers.

The most famous example is the SAP v. Diageo case in 2017, in which a UK court ruled that Diageo’s customers and sales representatives, who accessed SAP data via Salesforce interfaces, were required to hold SAP-named user licenses.

SAP sought over £54 million in fees for this indirect use​. That case sent a clear message to SAP customers about the financial stakes of unlicensed indirect access.

In recent years, SAP introduced the Digital Access licensing model to address indirect use in a more outcome-based way (charging for documents created rather than per user).

However, adopting Digital Access is optional and needs to be negotiated – it’s not automatic relief. Many organizations still operate under traditional terms, where indirect use is counted as named user consumption.

Therefore, overlooking indirect access points – for example, failing to license a middleware that feeds data into SAP or ignoring that data from SAP is exposed to thousands of external users – can lead to compliance issues and surprise bills.

Indirect use is easy to overlook because it’s not always visible in the SAP user list; it occurs through interfaces and integrations, often maintained by technical teams separate from those responsible for licensing.

Practical Scenario:

Consider a company using SAP ECC as its backend and a separate e-commerce platform for online sales if a customer places an order on the web store, which automatically creates an order in SAP, that customer (or the web store itself) is indirectly using SAP.

In one case, a company failed to account for this and, during an audit, discovered that their e-commerce integration had generated tens of thousands of SAP sales orders.

This activity was not covered under any license.

The resolution was either to purchase a new SAP Digital Access license (based on document counts) or face penalties for unlicensed indirect users.

The cost was significant and unbudgeted.

The key takeaway is to catalog all systems and users that interact with SAP, including those that do so through APIs or middleware.

If an external application reads or writes SAP data, work with SAP to ensure you have the proper license (be it named users, a blanket partner licensing agreement, or a digital access document license).

Compliance Issues from Poor Audit Preparation

SAP routinely conducts license audits on its customers. A lack of preparation for these audits is a pitfall that can turn minor license gaps into major compliance problems.

Poor audit preparation includes failing to measure usage regularly, not maintaining accurate records of licenses, and generally scrambling only when the official audit notice arrives.

Because SAP licensing is so intricate, a last-minute effort to gather data often results in mistakes or missed details.

The consequences range from compliance shortfalls (unlicensed usage that should have been detected) to panic-driven true-ups (purchasing additional licenses under duress to settle an audit).

Common audit-related mistakes include:

• Outdated or inconsistent user records: Many companies lack a clean, consolidated list of SAP users mapped to their respective license types. They might have duplicate user IDs for the same person across systems or inactive users that were never removed. During an audit, SAP’s tools (like USMM and LAW) may count these as separate licenses, inflating your usage count. You could appear non-compliant even with sufficient entitlements if you haven’t pre-cleaned the data. For example, inactive accounts will appear in the user count unless they are removed or flagged, meaning you might pay for licenses that provide no business value​.
• Lack of usage monitoring: Not tracking engine metrics or package license use is another blind spot. SAP engines (like SAP HANA, SAP Payroll, or Ariba transaction volumes) often have specific metrics (number of records, employees, transactions, etc.). Without internal checks, you may exceed the amount you purchased. An audit could uncover that you are running payroll for 1,200 employees while licensed for only 1,000 or using an SAP module you never licensed (perhaps inadvertently turned on by IT). The audit finding then forces a back-payment for the overuse. Regular internal audits would catch these overruns early.
• Unfamiliarity with contracts: If your team hasn’t reviewed your SAP contract and purchase history in detail, you may not realize what you’re entitled to or restricted from doing. This can lead to non-compliance (using features you didn’t buy) or missed opportunities (not leveraging license flexibilities you do have). When SAP’s auditors ask detailed questions, you must know your license grants and documents to respond confidently.

Being unprepared also weakens your position during the audit resolution phase. SAP’s auditors might claim compliance gaps that have explanations or could be negotiated, but you are likely to accept costly terms without preparation.

Companies that prepare year-round for audits – by conducting internal simulation audits and maintaining organized documentation – find the official audit to be a routine check rather than a fire drill.

By contrast, companies that ignore audit preparation often end up reactive, paying significant true-up fees or penalties that could have been mitigated. The pitfall is treating SAP license management as a once-a-year (or once-every-few-years) affair instead of an ongoing discipline.

Ineffective Contract Negotiation

SAP licensing agreements, whether for on-premise licenses or cloud subscriptions, are highly negotiable and complex.

Ineffective contract negotiation is a pitfall that can lock an organization into unfavorable terms or excessive costs for years.

This can occur at the initial purchase or during renewal and true-up discussions.

Common negotiation mistakes include:

• Insufficient preparation and usage analysis: If you enter a negotiation without a clear understanding of your current usage and future requirements, you’re negotiating in the dark. This often leads to buying bundles that don’t match actual needs (resulting in shelfware) or accepting SAP’s proposals without challenge. For example, not understanding which licenses are unused in your environment means you might agree to renew them unnecessarily. Lacking a growth plan could mean you under-buy and pay more later for incremental licenses outside of a discounted deal.
• Not negotiating flexibility: Companies often sign rigid contracts that lack provisions for change. An ineffective negotiation might fail to include clauses for license swapping or termination, and it might lock in user counts or subscription levels with no ability to adjust them. On-premise, this manifests as being stuck paying maintenance on licenses you no longer need because you didn’t secure the right to terminate or downscale them. In cloud contracts, it can mean committing to many subscriptions for multiple years without the right to decrease if your workforce shrinks or you divest a division. Such inflexibility is costly. Organizations that “take or leave” SAP’s standard terms without pushback often overcommit.
• Overlooking indirect use and hidden costs: Another negotiation pitfall is failing to address known risk areas, such as indirect access, future price increases, or cloud usage metrics. You could face surprise costs if these aren’t clarified and capped in your contract. For instance, failing to discuss indirect access upfront might leave you exposed to an audit claim later. Similarly, failing to negotiate the annual increase cap on cloud subscriptions can result in steep cost escalations.

The outcome of poor negotiation is typically a vendor-biased contract, characterized by high costs, limited rights to optimize, and potential penalties for growth or integration that you didn’t foresee.

In contrast, effective negotiation – often involving legal, procurement, and IT teams – can secure volume discounts, add protective language, and align the deal with the company’s actual roadmap.

Remember that SAP sales representatives are skilled at maximizing the deal from their side; customers must counterbalance that by being just as thorough.

Those who don’t may find themselves stuck in a “bad deal” and scrambling to optimize only at the margins.

As one best practice, some companies engage independent licensing advisors or use benchmarks from peers to strengthen their negotiating position and avoid known pitfalls.

Example: A multinational corporation quickly signed an enterprise agreement for SAP cloud services to meet a project deadline without much negotiation.

Later, they discovered the contract did not allow them to drop user subscriptions if they closed a regional office—they had to pay for those unused seats until the term ended.

Additionally, indirect use by third-party apps wasn’t addressed, and SAP later insisted on additional licenses when those integrations went live. These negotiation oversights cost the company millions beyond the initial contract value.

The lesson: approach SAP contract discussions as strategically as you would any major deal, with data, expert input, and a clear list of must-haves, to avoid signing on to problematic terms.

Failing to Adjust Licensing After Organizational Changes

Businesses are not static – they undergo mergers, acquisitions, divestitures, and reorganizations.

A significant pitfall in SAP licensing is the failure to adjust license allocations and contracts in response to organizational changes.

When two companies merge or one acquires another, they often consolidate their operations onto a single SAP system or at least share access.

If the licensing isn’t revisited:

• You might end up double-licensed for the same individuals or processes. For example, two merging companies each had an SAP contract with 500 users; post-merger, all 1,000 users are given access to both systems, potentially requiring license reconciliation. If not handled, the merged entity could be seen as using 1,000 users on each license set, far exceeding either contract’s allowances.
• Redundant licenses (and costs) may persist. The combined company might only need one SAP HR system instead of two, but if they continue to pay for both licenses without consolidation, one is effectively shelfware. This often occurs when companies fail to rationalize contracts and continue paying maintenance to stay compliant with systems that are scheduled for retirement.
• Conversely, unlicensed use can occur if Company A’s users start using Company B’s SAP system without a license transfer or expansion to cover them. SAP license agreements typically include clauses regarding affiliates and require SAP to notify them of any acquisitions. If a newly acquired subsidiary’s employees use SAP and aren’t covered under the parent’s license agreement, it creates a compliance gap.

Similar issues arise with divestitures and downsizing.

If a division using SAP is sold off, the company might suddenly have excess licenses (which could be terminated or reassigned elsewhere, but only if addressed). If not, they continue to pay for users who are no longer with the company.

On the other hand, if that division had unique licenses and those were not properly carved out, the divested unit might continue to use SAP without a valid license, exposing both the seller and buyer to compliance issues.

In summary, organizational changes can drastically alter your license needs​, and failing to adjust is a pitfall that can lead to either waste or non-compliance. Licensing teams must be involved early in M&A activities to assess the impact.

SAP allows some flexibility in these events (for example, crediting unused licenses toward new purchases or transferring licenses to a new entity, with SAP’s approval), but such adjustments usually require negotiation.

Example: A large automotive company acquired a smaller company that was running SAP ERP. The two SAP environments ran in parallel for a year while the businesses integrated. The IT team, however, did not reconcile the licensing during that time.

When an audit was conducted, SAP discovered that several users from the acquired company had unauthorized access to the parent company’s SAP systems, as they were not included in the license contract (unintentional indirect use across affiliates).

Additionally, the parent supported the acquired company’s separate SAP contract even though many of those functions were being migrated and the licenses duplicated.

The company had to scramble to consolidate the contracts, terminating some unused licenses (at a cost) and purchasing new ones to cover the shared usage.

This could have been handled far more smoothly (and cost-effectively) by proactively engaging SAP to merge contracts or adjust entitlements immediately after the acquisition, thereby aligning the license count with the new organizational reality.

Recommendations

Organizations should adopt a proactive and informed management strategy to avoid these common SAP licensing pitfalls.

Here are key recommendations and best practices for SAP license management:

• Conduct Regular Internal License Audits: Don’t wait for SAP’s official audit. Schedule periodic reviews of SAP usage (e.g., quarterly or biannually). Use SAP’s audit tools (like USMM and LAW) or third-party license management software to identify how many users are active, what license types they have, and any unassigned or duplicate accounts. Regular internal audits will highlight over-licensing (unused licenses that can be re-harvested) and under-licensing issues before they escalate. Treat this as an ongoing health check for compliance.
• Optimize User Classification and Allocation: Maintain a role-based licensing approach. Map job roles to appropriate SAP user license types and review these mappings at least annually or whenever roles change. Ensure heavy users have the proper level of access license, and conversely, downgrade users who don’t require advanced permissions. For example, if an employee transitions from a data analyst role to a read-only role, adjust their license from Professional to a lower tier, if possible. This practice prevents both overspending and compliance gaps. Additionally, a process should be implemented to immediately deactivate or reassign licenses when employees leave the company or no longer need access, preventing the accumulation of inactive “zombie” users.
• Use License Management Tools and Expertise: Leverage tools designed for SAP license optimization (such as SAP’s License Administration Workbench (LAW), SAP Solution Manager LMS, or third-party tools like Snow Optimizer). These tools can help track named user license consumption, consolidate duplicate accounts, and monitor engine metrics. They can often simulate different licensing scenarios to find the most cost-effective distribution of license types. Equally important, ensure you can access licensing expertise– in-house or via consultants. Keeping up with SAP’s licensing rules and changes (for example, updates to Digital Access or new user definitions) requires dedicated knowledge. An expert can interpret the fine print and advise on optimizing contracts or usage.
• Monitor Indirect Access and Integrations: Create an inventory of all systems that interface with SAP. For each integration (whether it’s a middleware, a customer-facing portal, a reporting tool, or even an IoT device updating SAP), determine how SAP licensing applies. Design integrations with licensing in mind wherever possible: you may choose to use SAP’s recommended integration users or document licenses, etc. Engage with SAP to clarify any ambiguous cases – for instance, if you deploy a new e-commerce platform, ask SAP how that scenario should be licensed to avoid surprises. Consider taking advantage of SAP’s Digital Access Adoption Program (if still available) or similar offerings to transition to document-based licensing for indirect use if it proves more cost-effective. The key is not to ignore indirect usage; assign responsibility to a team to regularly review interface logs and ensure compliance.
• Track and Reharvest Unused Licenses (Eliminate Shelfware): Make it a routine to identify and eliminate unused licenses, also known as shelfware. For on-premise licenses, this could mean removing unused user accounts from the system and then working with SAP or your license reseller to possibly terminate those licenses (especially during your annual contract renewal or true-up discussions). For cloud subscriptions, adjust your subscription counts downward at renewal if usage has dropped (some contracts even allow mid-term adjustments or have periodic true-up/down windows – negotiate for those). Internally, maintain a centralized license repository or dashboard that shows entitlements vs. actual usage. This visibility will enable you to easily spot shelfware – e.g., if you have 1,000 licenses for a component but only 600 active users, flag that. By reclaiming and reallocating unused licenses to new needs (instead of buying afresh), you maximize the value of what you’ve already paid for.
• Prepare Thoroughly for SAP Audits: Always be audit-ready. This means keeping meticulous records of your SAP licenses (contracts, purchase orders, SAP license certificates) and how they map to your systems and users. Document any assumptions or clarifications you have from SAP (for example, if SAP gave written confirmation that a certain indirect use scenario is covered under your current licenses, file that). Conduct mock audits internally: simulate the data you would provide to SAP, identify any compliance issues that surface, and then address them. Training your team on the audit process is also beneficial, as it provides knowledge of the typical timeline and the data that SAP will request. Respond cooperatively but confidently with the data at hand when an actual audit occurs. A well-prepared organization can often negotiate away minor findings by demonstrating control and knowledge, whereas an unprepared one might have to accept whatever SAP claims. In short, treat license compliance as an ongoing discipline, not a one-off event.
• Negotiate Contracts with Future Flexibility in Mind: When negotiating contracts or renewals with SAP, strive to incorporate flexibility and safeguards. Some actionable tips:
  • Right-size commitments: Base your purchase on realistic current needs with a growth buffer rather than overcommitting to a “worst-case” volume. You can add licenses later, often at a similar discount if pre-negotiated.
  • Include termination or swap rights: Try to negotiate the ability to swap unused licenses for other products or drop a license percentage at renewal without penalty. For example, negotiate a clause that allows you to terminate support on shelfware licenses or convert them to cloud credits if you move to the cloud.
  • Address indirect access explicitly: If indirect usage is a significant part of your environment, obtain a clear agreement with SAP on how it’s licensed (e.g., named users, add-on license, document-based) and include this in the contract to prevent future disputes.
  • Cap maintenance and increase rates: Ensure the contract limits annual maintenance fee increases or cloud subscription price hikes. Also, if you foresee organizational changes, discuss how acquisitions or divestitures will be handled license-wise (some contracts allow transferring licenses to affiliates or require fees to do so – know these terms in advance).
  • Leverage competitive timing: SAP’s fiscal year-end (typically in December) or quarter-end can be opportunities to secure better deals, but don’t let the rush force you into a bad contract. Take the time to review the terms in detail. It’s often worth getting legal counsel or a licensing specialist to review SAP’s proposal language, as those terms will govern your rights for years once signed.
• Align License Management with Business Changes: Develop a formal process to revisit SAP licensing whenever there’s a significant business change. For any merger or acquisition, involve the software asset management team in due diligence to determine what SAP licenses the other entity has, how they overlap with yours, and plan for consolidation (or divestiture) well in advance. Communicate with SAP early – they may offer consolidation agreements or advisory services to help you smoothly combine contracts, which can also be an opportunity to eliminate redundant licenses. Similarly, for divestitures, ensure you understand how to separate the licenses. Sometimes, sold business units may require a new SAP agreement, and you may be able to remove the corresponding licenses from your contract. Also, internal reorganizations (like centralizing a function or outsourcing a department) should trigger a license review. By syncing license management with the business lifecycle, you’ll avoid the trap of suddenly being out of compliance or overspending due to events like mergers and acquisitions (M&A).
• Stay Informed on SAP Licensing Policies: SAP frequently updates its licensing models – for example, new cloud products come with new metrics, or SAP may adjust rules regarding indirect access, trial programs, and other aspects. Stay engaged with the SAP user community by attending SAP webinars or licensing training, and regularly review SAP’s official updates. Knowledge of policy changes can alert you to both pitfalls and opportunities. For instance, SAP’s introduction of RISE with SAP (a bundled offering) or changes in S/4HANA pricing could affect what is optimal for you. Being aware allows you to adjust your strategy (perhaps moving to a different license model or taking advantage of a limited-time incentive) rather than sticking with an outdated approach. If possible, designate someone in your team as the “SAP License Owner” whose role includes monitoring these developments. This also means maintaining good communication with your SAP account executive – they will inform you of changes. However, remember, their perspective is to sell more, so it’s wise to cross-check information with independent sources or user groups.

By following these recommendations, enterprises can significantly reduce their exposure to SAP license compliance risks and unnecessary costs.

Effective SAP license management is a collaborative and continuous effort, involving IT, procurement, financial controllers, and sometimes external advisors.

With a proactive approach, companies can turn SAP licensing from a minefield of potential pitfalls into an opportunity for strategic cost optimization and operational assurance.

The goal is to only pay for what you truly need, fully use what you’ve paid for, and remain confidently compliant even as your SAP landscape and business evolve.