Pros and Cons of Each SAP License Model
Introduction: Perpetual, subscription, and consumption-based licensing have distinct advantages and disadvantages. The best choice depends on an organization’s priorities and situation.
Below is a side-by-side comparison of these SAP License models across key dimensions, followed by recommendations on aligning license strategy with business goals.
Comparison of Licensing Models
| Dimension | Perpetual License (On-Premises) | Subscription License (Cloud/SaaS) | Consumption-Based License (Pay-per-use) |
|---|---|---|---|
| Cost Structure | Upfront + Maintenance: One-time license fee, plus annual maintenance (e.g. ~20% for support). High initial CapEx, low ongoing cost. | Recurring Fee: Regular (e.g. annual) subscription payments cover software and support. OpEx model with no large upfront, but continuous cost. | Usage-Based Fees: Pay only for actual usage (metered services). No upfront license cost; costs scale with consumption each period (OpEx). |
| Ownership & Term | Permanent Use Rights: License never expires – you can use the software indefinitely (maintenance affects support, not usage). You “own” the software license. | Time-Limited Use: Right to use exists only during the subscription term. If you stop paying, access ends. No perpetual rights; essentially renting the software. | On-Demand Use: No long-term contract required (unless you pre-commit credits). You can stop using at any time, but similarly have no ongoing usage rights if not consuming. |
| Infrastructure | Customer-Managed: Deployed on-premises or in customer’s private cloud. You handle hardware, installation, and upgrades (or pay a hosting partner separately). | Vendor-Managed: Delivered as a cloud service by SAP (or partner). Infrastructure, updates, and maintenance are handled by the provider and included in the fee. | Vendor-Managed: By nature a cloud model (SAP runs the services you consume). You don’t manage infrastructure for the services, only your usage of them. |
| Flexibility & Scalability | Static Capacity: License quantity is fixed once purchased. Scaling up requires buying additional licenses; scaling down can leave you with unused licenses. Not easily adjustable in the short term. | Moderate Flexibility: Can add or remove users or modules, typically at renewal or via contract change. Some elasticity but generally a fixed commitment during the term. | Highly Elastic: Completely elastic usage. You can ramp consumption up or down freely. Cost adjusts directly with usage – you pay for capacity only when you use it, and you’re not locked into paying for unused resources. |
| Cost Predictability | High (after upfront): Maintenance fees are predictable year to year. Upgrades are under your control (you decide when to invest in new versions). The big upfront spend is a budget consideration. | High (short-term): A set periodic fee over the contract term makes budgeting straightforward. Over a longer horizon, costs accumulate and can increase at renewal. | Variable: Spend fluctuates with usage. Budgeting requires careful forecasts and ongoing tracking. Without oversight, usage spikes can cause unplanned costs. |
| Long-Term Total Cost | Potentially Lowest: If used for many years, a one-time purchase plus maintenance can yield the lowest TCO. Once the license is paid off, costs drop to maintenance and infrastructure only. | Higher Over Time: Continuous payments mean the TCO can exceed a purchase if the horizon is long. However, you pay only while getting value; if you plan a shorter usage span, it can be efficient. | Usage-Dependent: For steady high usage over many years, this model could become most expensive (at that point, switching to a subscription might save money). For intermittent or short-term usage, it can be very cost-effective (no pay when not in use). |
| Compliance & Audit | Customer-Governed: You must track user counts and usage of SAP to stay within licensed amounts. Audits involve running SAP measurement tools and showing you haven’t exceeded named users or engine metrics. Indirect access needs to be managed via user or document licenses. | Usage-Dependent: For steady high usage over many years, this model could become most expensive (at that point, switching to a subscription might save money). It can be very cost-effective for intermittent or short-term usage (no pay when not in use). | Monitor Usage: Compliance is essentially pay-as-you-go – ensure you pay for all usage. The risks are financial: exceeding any prepaid credit allotment triggers on-demand rates, and unused purchased credits may expire worthless. Strong internal monitoring is needed to prevent budget overruns. |
| Typical Use Cases | Contract-Defined: Compliance means staying within your subscription agreement’s user numbers or other limits. SAP can often monitor actual usage in the cloud, which reduces the chance of unnoticed overuse (but you should still internally ensure you have the right entitlements). | Cloud Adoption & Standardization: Organizations that want quick deployment, regular updates, and to outsource IT infrastructure. E.g. a mid-size firm choosing S/4HANA Cloud via RISE to avoid maintaining hardware and to get predictable costs and service. | Variable or Emerging Needs: Situations where SAP usage is project-based, experimental, or seasonal. E.g. a retailer using SAP BTP services during holiday season surges, or a startup building an app on SAP’s platform and scaling usage as it grows. |
Table 1: Comparison of Perpetual vs. Subscription vs. Consumption Licensing Models
Aligning Licensing with Strategy
Each model has pros and cons, and they align differently with business strategies:
- Perpetual – Best for organizations focused on long-term ownership and control. For example, if your IT strategy is to maintain systems in-house and you have the capital budget, perpetual licenses align with that. Industries with strict regulatory or customization requirements (e.g., government, defense, certain manufacturing) often stick with on-premise perpetual systems to ensure nothing changes without their approval. To succeed with this model, ensure you have the infrastructure and skilled staff to manage the environment. Over time, you avoid ongoing subscription fees but take on the responsibility for maintenance, support, and upgrades internally or via partners.
- Subscription – Best for companies aiming for agility and up-to-date technology without managing the underlying infrastructure. It aligns with a cloud-first or asset-light strategy – you let SAP handle technical operations while you focus on using the software. This model works well if you value predictable operational expenses and continuous access to the latest features. It’s often chosen during digital transformation to quickly leverage new SAP innovations (for example, moving from ECC to RISE with SAP for S/4HANA as a subscription service). Consider long-term costs: plan for subscription renewals and possible price escalations, and take advantage of the vendor-managed service to reduce your internal IT workload.
- Consumption-Based – Best for scenarios of innovation, unpredictable or seasonal demand, or where you want to “pay as you grow.” It aligns with an agile approach – for instance, building new applications on SAP BTP without a large upfront investment, or extending your ERP functionality for a pilot project. It’s also useful alongside a stable core: you might run a core system on a subscription or perpetual license and use a consumption model for supplementary services that have fluctuating usage. Invest in monitoring and governance to succeed with this model (to prevent surprise costs). Consider converting high-use services to a subscription to optimize costs when usage becomes more predictable or permanent.
Recommendations
- Match the Model to Your Plans: Choose a model that fits your 5—to 10-year business and IT plan. If your company anticipates steady operations and values IT independence, a perpetual model may best align. If rapid change and scalability are key, subscription or consumption models will provide needed flexibility. Always project the total cost over the intended period of use—what looks cheaper in year 1 might not be over a decade, and vice versa.
- Consider a Hybrid Approach: You can mix models to suit different parts of your SAP landscape. Many enterprises do this – for example, keeping a perpetual license for a legacy core ERP they’ll use long-term, using subscriptions for cloud products like SuccessFactors or Ariba, and leveraging consumption-based licenses for SAP BTP or analytics services where usage varies. This alignment allows each system to be licensed in the most cost-effective and manageable way.
- Review and Adjust Over Time: Your licensing strategy should evolve with your business. Review whether your current mix is optimal periodically (e.g., annually or before major SAP contract renewals). If a formerly stable environment is scaling up rapidly, you might shift from perpetual to subscription to spread out costs. If a cloud service under subscription is now mission-critical and usage is predictable, ensure you have the right subscription tier (or consider if owning it on-prem would now be feasible). Similarly, if you’re consistently underusing a subscription or credit commitment, you might scale it down or move to more of a pay-per-use approach. Staying proactive will help you avoid overspending or compliance issues.
Read Choosing the Right SAP License Model.
By understanding the trade-offs in Table 1 and aligning them with your organization’s goals, you can develop a licensing strategy that balances cost, flexibility, and control.
The key is to remain informed and adaptable: regularly compare your usage and costs against expectations. Don’t hesitate to adjust your licensing approach as your business evolves and SAP’s offerings change.
