Introduction: Beyond traditional user or module-based licenses, SAP now offers consumption-based licensing for certain products. This model ties costs directly to actual usage of software services, rather than fixed upfront fees.
In a consumption model, customers pay according to what they consume, similar to utility billing, which introduces flexibility and new considerations for SAP procurement professionals.
What is Consumption-Based Licensing?
Consumption-based licensing means you purchase SAP software capacity or credits and pay only for the resources you use. There is typically no long-term lock-in to a specific number of users or a flat fee; instead, usage costs scale up or down.
SAP provides this model mainly for its cloud services and platforms. As one SAP partner explains, it’s a “no-commitment” license where payment is based on actual usage. It is available in offerings like SAP Business Technology Platform (BTP), SAP Datasphere, and cloud applications such as SAP Ariba and SAP Fieldglass.
In practical terms, SAP often uses a credit system. For example, under the SAP Cloud Platform Enterprise Agreement (CPEA), customers buy a pool of cloud credits upfront (like buying tokens) and then draw down those credits as they activate and use various SAP BTP services.
Think of credits as the currency for SAP services – if you’ve ever loaded a prepaid card for an arcade, it’s a similar concept. Alternatively, SAP offers pay-as-you-go plans with no upfront commitment: you simply get billed periodically for whatever was consumed.
How Usage is Measured and Priced
Every consumption-based offering has defined metrics that are metered. For instance:
- SAP BTP Services: Measured by resource usage (e.g., memory hours, CPU time, data storage), or by transactions/API calls. Each service has a rate in credits or currency. Usage is tracked automatically in the SAP BTP cockpit, and credits are deducted accordingly.
- SAP Datasphere (Cloud Data Warehouse): It uses capacity units—for example, processing and storage are metered, and you can either pre-purchase a certain capacity or pay per use on BTP.
- SAP Ariba: Certain Ariba cloud solutions can be licensed by transaction volume or total spend through the Ariba Network, rather than a fixed subscription.
- SAP Fieldglass: Licenses might be based on the number of external workers or transactions managed, with costs accruing as you onboard more contractors.
Under a consumption model, SAP provides tools and dashboards for customers to monitor their usage. Typically, usage is measured monthly. The monthly usage is deducted from your credit balance if you have a credit agreement (like CPEA).
If you are on pay-as-you-go, your usage is converted to a monetary charge on your bill. Importantly, if you consume more than your prepaid credits, the excess is charged at on-demand list prices (often higher rates)—a key consideration to watch.
Read Named User vs. Engine Licensing in SAP.
When to Consider Consumption-Based Models
This model is best suited for scenarios where the usage of SAP services is variable or hard to predict:
- Innovative Projects and Prototyping: If you experiment with SAP BTP, machine learning, or IoT services, a consumption model lets you try these services and only pay for what you use. For example, a company building a prototype app on BTP can start on a pay-as-you-go basis and only incur small charges.
- Uncertain or Seasonal Workloads: If your usage might spike at certain times (quarter-end reporting, seasonal traffic) and be low at others, consumption pricing ensures you’re not paying for idle capacity during slow periods.
- Broad Service Access: With a credit-based enterprise agreement, you gain entitlement to many SAP services under one contract. This is ideal if you plan to use multiple SAP cloud services in varying amounts. Rather than signing separate licenses for database, integration, analytics, etc., you draw from one flexible pool of credits.
- Cost Control for Short-Term Needs: If you need a service for a limited time (e.g., a three-month data analysis project), it can be cheaper to pay per use than to buy a one-year subscription.
Organizations with agile, project-based usage patterns or those pursuing a cloud-first strategy often consider consumption licensing to avoid over-buying. It provides a way to start small and scale usage as needed.
Benefits of Usage-Based Licensing
- Flexibility: You pay only for what you need, preventing spending on excess capacity or unused licenses. It’s easy to scale usage up or down without renegotiating a new license each time.
- Access to a Wide Range of Services: Especially with SAP BTP credits, one pool can cover dozens of services. This simplifies procurement – one agreement can replace multiple separate software licenses.
- Lower Barrier for Innovation: Teams can experiment with new SAP technologies (AI services, blockchain, etc.) without a big upfront investment. If a project doesn’t take off, the cost stops when usage stops.
- OpEx Alignment: All costs are operational expenses tied to actual use, which can be easier to budget than large capital expenditures in some companies.
Read SAP Perpetual vs. Subscription Licensing.
Challenges and Pitfalls
- Unpredictable Costs: The flip side of flexibility is that monthly costs fluctuate. Without proper monitoring, a surge in usage (e.g., an unexpectedly high number of transactions or a service left running over a weekend) can lead to a surprise bill.
- Overage and Premium Rates: If you commit to a certain amount of credits and exceed that, the overage is billed at full list price, which is expensive. Conversely, if you over-commit, any unused credits expire at the end of the contract (use-it-or-lose-it), resulting in wasted budget. Sizing the right commitment is tricky.
- Management Overhead: Consumption models require active management. You’ll need governance to track usage across departments, set up alerts or limits, and possibly implement internal charge-back so teams know their consumption.
- Complex Pricing Models: Each service has its unit of measure and rate. Understanding and forecasting multi-service usage can be complex. For example, an application on BTP might incur database credits, compute credits, and networking costs simultaneously. This requires a different skill set than counting users for a subscription.
Tips for Success with Consumption Licensing
- Monitor Usage Continuously: Leverage SAP’s dashboards and set up alerts. For instance, BTP allows setting budget alerts when credit consumption reaches certain thresholds. Regularly review usage reports to catch anomalies early.
- Start with Pay-as-You-Go, then Commit: If you’re unsure about usage levels, consider starting a PAYG plan. This lets you observe actual consumption. Once you identify steady usage patterns, you can switch to a CPEA (commitment) model to get volume discounts.
- Optimize and Clean Up: Treat cloud credits like money – don’t waste them. Shut down test systems or sandboxes when not in use, purge unused data, and optimize processes (e.g., avoid inefficient queries that consume excess resources).
- Educate Stakeholders: Ensure project teams understand that cloud resources have real costs tied to usage. Establish guidelines for efficient service use.
- Combine with Subscriptions if Needed: A hybrid approach sometimes works. Use consumption-based licensing for new or variable services, but if a certain service becomes a stable, mission-critical part of your operations, evaluate whether a fixed subscription would be more cost-effective. For example, heavy, predictable use of an integration service might be cheaper on a flat subscription than on a per-message charge.
