How to Calculate SAP Licensing Costs
SAP licensing costs can be complex, but they are manageable with the right approach. CIOs and CTOs should break down costs by user licenses, software modules, and deployment choices and then factor in ongoing support fees.
This guide offers a step-by-step approach to calculating SAP license costs and provides strategies to optimize and negotiate those costs effectively.
SAP Licensing Components and Cost Factors
SAP uses a combination of named user licenses and package (engine) licenses. Named user licenses are assigned to each person accessing the system, while package licenses cover specific modules or add-ons and are measured by usage (transactions, revenue, etc.).
You also have the option to choose between perpetual (on-premise) and subscription (cloud) licensing, which affects the cost structure.
Key factors that drive SAP license costs include:
- Users and License Types: How many users do you have, and what type of license does each need? More users mean higher costs, and high-level user types (like Professional) cost significantly more per user than limited or self-service users. (For example, a Professional license might list at ~$3,000, while a basic self-service license could be under $100.)
- Modules/Add-Ons: Which SAP modules or products do you use? Many specialized modules (advanced analytics, industry solutions, etc.) require their licenses, often priced by metrics such as the number of employees or transactions.
- Indirect Access: Third-party systems or bots that interact with SAP data. Suppose external applications (such as a web portal or CRM) create or retrieve SAP records. In that case, you may need Digital Access licenses to cover that indirect use (typically sold based on document counts).
- Deployment Model: On-premise vs. cloud. On-premise means buying licenses upfront and running SAP on your servers (with associated hardware and IT costs). Cloud is a subscription that includes software, hosting, and support – no upfront infrastructure but a continuous annual fee.
- Support Fees: Annual support for on-premise licenses (typically ~20% of the license price), which covers updates and help from SAP. In a cloud subscription, this cost is bundled into the subscription fee.
Read SAP Licensing Compliance and Best Practices.
Calculating On-Premise vs. Cloud Costs
How you calculate SAP costs differs by deployment model:
- On-Premises (Perpetual): Add up the one-time license fees for all required users and any engine licenses. Then, add approximately 20% of that total per year for support and maintenance. Don’t forget to include infrastructure expenses (such as servers, storage, and database licenses) and internal IT labor costs.
- Cloud Subscription: Estimate the recurring subscription fee based on the number of users (and possibly a base package). This subscription includes the software, underlying infrastructure, and support. There’s no hefty upfront license payment, but you commit to a regular annual or monthly fee.
For example, over three years, you might spend approximately $1.7M on an on-premise SAP deployment versus $1.8M for a comparable cloud subscription. On-premises solutions require higher upfront spending, while cloud solutions spread costs over time.
Optimizing and Negotiating Your SAP Costs
After estimating baseline costs, consider ways to reduce them:
- Audit and Right-Size: Regularly audit SAP user accounts and usage. Remove or reassign licenses for employees who left and downgrade any users who have more access than necessary. This prevents the need to pay for pricey licenses that aren’t used.
- Monitor Indirect Usage: Keep track of external systems that interface with SAP. If you have significant data exchange with non-SAP applications, obtain licenses for that indirect usage or optimize integrations to reduce it. Being proactive helps avoid surprise fees in an SAP audit.
- Negotiate Smartly: Remember that almost everything is negotiable. Use your usage data to negotiate volume discounts and better terms. Ask for flexible contract provisions – for example, the right to swap license types or adjust user counts as needs change – and try to lock in pricing for future growth (additional users or new modules). It can also help to engage SAP when they’re eager to close a deal (such as the end of the quarter).
Read Global Trends in SAP Licensing.
Recommendations
- Maintain License Inventory and Budget: Track all your SAP licenses and usage, and include every cost component (licenses, maintenance, etc.) in your budget planning.
- Use Data in Negotiations: Leverage your usage data (and any available benchmarks) when negotiating with SAP. A data-driven approach can secure better discounts and terms.
- Insist on Flexibility: Include terms in your SAP agreements that let you adjust license counts or types as your needs change. This prevents overpaying for unused licenses.
- Stay Ahead of Compliance: Periodically self-audit your SAP usage versus entitlements to catch any compliance issues early and resolve them before audits.
- Get Expert Input if Needed: If SAP licensing feels overwhelming, consider consulting a licensing specialist or using analysis tools. Expert insights can uncover cost savings and help avoid pitfalls.
FAQ
Q: Is it cheaper to run SAP in the cloud or on-premise?
A: It depends. On-premises can be cheaper in the long run if you have the infrastructure and steady usage, since you pay upfront (licenses) and then only annual maintenance. Cloud solutions tend to cost more over time but include infrastructure, offer easier scalability, and convert a capital expense into a predictable operating expense.
Q: Do we have to license each SAP module separately?
A: Often, yes. Many modules beyond the core ERP (like advanced CRM or HR) require their licenses. Check which ones are not included in your base package so you can add those costs to your plan.
Q: How is indirect usage (non-human access) licensed?
A: SAP’s Digital Access licensing charges are based on the number of documents that external systems create or view in SAP (e.g., orders or invoices). You estimate your integration document volume and license that quantity (often negotiated upfront to avoid surprises).
Q: What ongoing costs should we budget for beyond initial licenses?
A: If you run SAP on-premise, plan for annual maintenance fees (about 20% of license cost per year) for support and updates. Also, budget for infrastructure (servers, storage, backups) and the personnel to manage the system. In a cloud scenario, these infrastructure and support costs are included in the subscription fee; however, you’ll need to budget for the full annual subscription payments. In short, beyond the upfront licenses, the major ongoing costs are support and maintenance, as well as the IT resources required to keep SAP running.
Q: Can we negotiate a better deal on SAP licensing?
A: Absolutely. Few customers pay the full list price. Always negotiate for better pricing and terms. For instance, consider securing bulk-user discounts, lower maintenance rates, or credits for future needs. It often helps to engage SAP when they’re eager to close sales (like quarter-end) and to come prepared with clear requirements and industry benchmarks. Remember, SAP’s initial quote is just a starting point.
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