How to Calculate SAP Licensing Costs
- Determine the number and type of users.
- Consider which modules are required.
- Evaluate whether on-premise or cloud licensing is used.
- Account for indirect access and third-party system integrations.
- Add potential costs for maintenance and support.
- Review potential volume discounts or contract negotiations.
How to Calculate SAP Licensing Costs
SAP licensing can be complex, and accurately estimating the cost of SAP software is crucial for any business looking to implement or expand its SAP ecosystem.
Understanding how licensing costs are determined can help businesses budget effectively, avoid surprises, and make informed decisions.
In this article, we’ll explore the various factors involved in calculating SAP licensing costs and the different types of licenses available and provide some best practices for managing these costs effectively.
SAP licensing involves several components, each with distinct cost implications that require a thorough understanding to avoid overspending or underestimating your needs.
This comprehensive guide aims to provide all the necessary insights for accurate and effective SAP licensing cost calculation.
SAP Licensing Models
To calculate SAP licensing costs, it’s essential to first understand SAP’s different licensing models. SAP provides both On-Premise and Cloud-based licensing options, each with different pricing structures.
- On-Premise Licensing: In this model, businesses pay an upfront cost for the software license and annual maintenance fees. The perpetual license can be used indefinitely, but maintenance and support require ongoing payments. This option is often suitable for companies that prefer having complete control over their IT infrastructure.
- Cloud Licensing: SAP provides a subscription-based model for cloud solutions where businesses pay a recurring fee, usually monthly or annually. This model includes hosting, support, and maintenance at the subscription price. It provides a more flexible and scalable solution, particularly beneficial for businesses experiencing rapid growth or requiring minimal IT infrastructure management.
Each model has its cost dynamics, and deciding which suits your business depends on infrastructure capability, scalability needs, compliance requirements, and budget flexibility.
Key Factors Influencing SAP Licensing Costs
A variety of factors determines SAP licensing costs. Understanding these factors is key to making an accurate cost estimate.
Here are the major elements that influence SAP licensing costs:
1. Type of License
SAP offers different types of licenses depending on how you plan to use the software. The main types include:
- Named User License: This license type is assigned to specific users who need access to SAP software. The cost depends on the number of users and the type of access they need. Named user licenses are ideal when users need unique, individualized access.
- Concurrent User License: This license allows multiple users to share access, but only a certain number of users can access the system simultaneously. This can be cost-effective for shift-based work environments where employees do not require simultaneous access.
- Engine License: These licenses are based on metrics such as processing power, database size, or the number of transactions processed. These costs vary based on system utilization and are commonly used for components that depend on high-volume processing.
- Package License: SAP also licenses specific modules or packages, such as SAP ERP, CRM, or SCM, based on usage metrics like revenue or the number of documents processed. This type of licensing is particularly useful when a business only requires specific functionalities.
Example: A manufacturing company may need SAP’s Production Planning (PP) module. The cost will depend on whether the company opts for a named user license for each planner or a package license for the module. This decision should consider the number of planners involved and their specific requirements.
2. User Types and Classification
User licensing is a significant factor in SAP costs. SAP differentiates between Professional Users, Limited Professional Users, and Employee Users, each with a different cost.
- Professional Users: These users have full access to all functionalities within the SAP system. This license type is the most expensive and is generally assigned to users who need comprehensive system capabilities, such as system administrators, business analysts, and developers.
- Limited Professional Users: These users have restricted access to specific functions. They typically have lower costs than professional users and are suitable for employees with defined responsibilities.
- Employee Users: These users only need basic access, such as viewing reports or entering time data. These licenses are generally the least expensive and are often assigned to large groups of users who perform routine tasks.
Example: In an organization, a manager who needs to run detailed reports and oversee various operations may require a Professional User license, while a shop floor employee only entering production data might require an Employee User license. Correct classification is crucial for avoiding unnecessary costs.
3. SAP Modules and Packages
SAP licensing costs also depend on the specific modules or packages your business requires. Each module, such as Finance (FI), Human Resources (HR), or Customer Relationship Management (CRM), is licensed separately.
- Core Modules: Modules like FI and HR are core to most organizations and are usually priced higher due to their essential role in business operations. These modules typically support the company’s critical backbone processes.
- Industry-Specific Modules: Modules that cater to specific industries, such as SAP IS-Retail or SAP IS-Utilities, may have different pricing structures and are often customized for unique industry needs. This customization often leads to higher licensing fees compared to generic modules.
Example: A retail company may need the SAP IS-Retail module, priced differently from a generic core module like Finance. Businesses need to evaluate the relevance of each module to avoid paying for unnecessary functionalities.
4. Infrastructure Requirements
Infrastructure costs also contribute to the overall licensing costs for on-premise solutions. This includes the cost of servers, storage, networking equipment, and other hardware required to run SAP software.
Maintenance and IT staffing to support the infrastructure must also be factored in, as these can lead to significant recurring expenses.
On the other hand, cloud solutions bundle infrastructure into the subscription cost, often making the cloud a more predictable expense.
However, businesses must consider whether they need cloud infrastructure’s flexibility and scalability and the implications of data security and control.
5. Indirect Access and Digital Access Licensing
One of the most overlooked cost factors in SAP licensing is Indirect Access. Indirect access occurs when users interact with SAP through third-party systems rather than directly logging in.
SAP introduced Digital Access Licensing to address this issue, where businesses pay based on the number of documents created by indirect system access.
- Example: If a CRM system pulls data from SAP, users might need indirect access licenses, which can significantly increase costs if not properly planned. To calculate these costs, it is essential to map out all external systems interacting with SAP and assess their impact.
Understanding and monitoring indirect access is crucial because it can lead to unexpected expenses. Many companies have faced compliance penalties due to a lack of awareness of indirect access costs.
6. Maintenance and Support Costs
SAP charges an annual maintenance fee for on-premise licenses, usually between 18% and 22% of the original license cost. This fee covers support services, software updates, and patches, ensuring the system is up-to-date and secure.
Subscription-based licenses for cloud solutions typically include maintenance and support in the monthly or annual subscription fee, which can make budgeting easier but could be more expensive in the long run. Understanding the implications of maintenance costs is important for comparing different licensing options and choosing the best fit for the organization’s long-term strategy.
Steps to Calculate SAP Licensing Costs
To accurately calculate SAP licensing costs, businesses must systematically consider all relevant factors.
Here are the steps to help you determine the costs effectively:
1. Define Your Requirements
The first step is to define the scope of your implementation. This includes:
- Number of Users: Determine how many users will need access to SAP and classify them based on their role (e.g., professional, limited professional, or employee). This helps to allocate licenses more effectively and avoid overestimating needs.
- Modules Needed: Identify which modules your organization will use, such as Finance, HR, Supply Chain, etc. Defining the necessary modules helps avoid paying for functionalities your business won’t utilize.
- Type of Deployment: Decide if you want an on-premise or cloud-based solution. This decision will influence infrastructure costs, maintenance fees, and scalability.
2. Choose the Appropriate Licensing Model
Based on your requirements, decide between an on-premise license and a cloud subscription. Consider whether you prefer perpetual or subscription licensing for specific modules or features for on-premise.
3. Calculate User-Based Costs
Calculate the cost based on the number and type of users:
- Professional User License Cost: Multiply the number of professional users by the cost per user. This is typically the largest cost component due to the high price of professional user licenses.
- Limited Professional and Employee User Costs: Do the same for limited and employee users. Accurately classifying users helps prevent the assignment of costly licenses to those who only need limited functionality.
Example: If you have ten professional users at $4,000 each and 30 employee users at $500 each, the total user-based cost would be $55,000.
4. Include Module or Package Costs
If your implementation includes multiple modules, calculate the cost for each one. Some modules may be bundled at a discount, but others may have additional costs.
- Core Modules: Determine the costs for essential modules like Finance and HR.
- Add-Ons: Include the costs for industry-specific or additional modules, such as CRM or Production Planning. Bundling modules may provide cost benefits, but be mindful of unnecessary add-ons.
5. Factor in Indirect Access Costs
If third-party applications indirectly access SAP, the costs of digital access licensing will be included. Calculate the potential number of document transactions created by external systems and ensure they are adequately licensed. This ensures that your business remains compliant and avoids surprise costs during audits.
Example: If your CRM creates 1,000 document transactions per month, you’ll need to price out a digital access license that can cover this volume. Misjudging the number of documents can lead to substantial compliance costs.
6. Consider Infrastructure and Maintenance
Add the infrastructure cost, including hardware, IT staffing, and maintenance, to the cost of on-premise implementations. For cloud implementations, factor in the recurring subscription cost.
- On-premise: Include servers, storage, networking, and staff salaries. Also, factor in periodic infrastructure upgrades to maintain compatibility with SAP.
- Cloud: Calculate the total annual subscription based on the cost per user and modules needed. Consider additional cloud services like data storage expansion or advanced security.
7. Maintenance and Support Costs
If you opt for on-premise, calculate the annual maintenance fee (typically 18-22% of the original license cost). For cloud subscriptions, these costs are generally bundled into the recurring fee.
Example: If the initial on-premise license costs $200,000, the annual maintenance could range between $36,000 and $44,000. Accurate maintenance calculation ensures there are no budgetary shocks later on.
Best Practices for Managing SAP Licensing Costs
Managing SAP licensing costs effectively requires strategic planning and continuous monitoring.
Here are some best practices to help you manage costs:
1. Conduct Regular Audits
Perform regular internal audits to track license usage. Ensure that users are properly classified and that the correct license types are assigned. This can help identify unused licenses and opportunities to downgrade licenses to reduce costs. Audits also help identify unauthorized access or indirect usage that could lead to non-compliance.
2. Monitor Indirect Access
Stay aware of how third-party systems interact with SAP to avoid surprises in indirect access. Implement Digital Access Licensing where appropriate and monitor transaction volumes to keep costs predictable. This practice is crucial in avoiding hidden costs arising from system integrations.
3. Right-Size User Licenses
Ensure that each user has the appropriate license type. Avoid giving Professional Licenses to users who only need basic access. Consider concurrent licenses if you have shift-based users who don’t need continuous access. Carefully analyzing user roles and selecting the appropriate license type can result in significant savings.
4. Negotiate with SAP
SAP is often open to negotiation, especially during contract renewals. Consider negotiating discounts for volume purchases, bundling maintenance with other services, or extending payment terms. Working with an experienced SAP consultant during negotiations can help you achieve more favorable terms.
How to Calculate SAP Licensing Costs FAQ
What is the first step in calculating SAP licensing costs?
Identify the number of users and the licenses they need (Professional, Limited, etc.).
How do SAP modules affect licensing costs?
Different modules (e.g., finance, HR) are priced separately, and adding more modules increases the overall cost.
What’s the difference in cost between on-premise and cloud licensing?
On-premise licenses require an upfront fee and infrastructure costs, while cloud licenses are subscription-based with recurring payments.
How does indirect access impact SAP licensing costs?
Indirect access fees apply when third-party systems interact with SAP data, adding additional costs to your licensing.
What role do support and maintenance fees play?
Maintenance and support contracts add ongoing software updates and helpdesk support costs, typically a percentage of the overall license price.
How do user types influence SAP license costs?
Different user types (Professional, Limited, Developer) have varying costs based on the level of access they require.
Can volume discounts reduce SAP licensing costs?
Businesses purchasing many licenses may be eligible for volume discounts, reducing the per-user cost.
What is the role of contract negotiations in SAP licensing costs?
Negotiating terms with SAP, especially during renewal or initial purchase, can significantly affect pricing and potential discounts.
How should businesses handle indirect access fees?
Monitor third-party system interactions with SAP and ensure proper licensing to avoid unexpected fees for indirect access.
Are there additional costs for SAP cloud services?
Cloud services may include additional storage, bandwidth, and scaling fees, which should be factored into the overall cost.
What is the importance of user license audits?
Regularly auditing your licenses ensures you’re not overpaying for unused or underlicensed licenses, which could lead to penalties.
Can SAP licensing costs change over time?
Yes, costs may increase during renewal periods, especially if additional users, modules, or services are required.
How do businesses manage SAP licensing costs effectively?
Regular audits, planning for future growth, and negotiating terms can help manage and reduce overall costs.
Why is it important to choose the right licensing model?
Choosing between cloud, on-premise, or hybrid licensing affects costs, flexibility, and scalability, impacting long-term expenses.
How can businesses forecast future SAP licensing costs?
Evaluate projected growth, upcoming module needs, and user expansion to forecast and budget for future licensing costs effectively.
