SAP License Cost Drivers – Named Users vs. Engines in S/4HAN

SAP License Cost Drivers – Named Users vs. Engines in S/4HANA

Introduction – Why Understanding Cost Drivers Matters

SAP licensing is famously complex, but most of the cost in an SAP S/4HANA environment comes down to two main areas: user licenses and engine (or package) licenses. Mismanaging either can lead to over-licensing and wasted budget.

For CIOs, CFOs, and IT managers, understanding these cost drivers is critical. If you don’t know where the costs are coming from, you can’t control them.

This overview explains how named user licenses and engine licenses work, how each contributes to your SAP spend, and what strategies you can use to optimize costs on both fronts.

The goal is to help you negotiate smarter and avoid common pitfalls that lead to overspending. Read our ultimate guide to S/4 Hana Licensing.

Users vs. Engines – What Are They?

Named Users: A named user license is tied to a person who accesses the SAP system. Each user – whether an employee or a contractor – requires a license to be assigned to them.

SAP offers different user license types based on the level of access and role.

Common categories include Professional users (full access, for power users and administrators), Limited/Functional users (access to specific modules or tasks, at a lower cost), Employee Self-Service (ESS) or Productivity users (very limited access for casual or self-service tasks), and special types like Developer licenses (for technical staff who configure or customize the system).

The key point is that every distinct person using SAP consumes one license, and you should match the license type to their needs.

For example, a finance manager might require a Professional license, while a line employee who only enters timesheets could be fine with an ESS license.

The cost difference is significant, so optimizing user license assignments is a major cost control lever.

Engine/Package Licenses:

Engine licenses (also called package licenses) cover specific SAP modules or functional components and are not tied to a single user. Instead, they are measured by a usage metric or a capacity metric.

You pay for the right to use that functionality up to a certain amount of usage.

For example, you might license the SAP Payroll engine based on the number of employees you process in the system, or a SAP Extended Warehouse Management (EWM) engine based on the number of warehouse transactions per year.

SAP has a wide range of metrics: it could be the number of documents (orders, invoices), total revenue processed, number of employees, database size, or even CPU cores for technical components like the HANA database.

Engine licenses allow an unlimited number of users to use that module, but the module’s usage cannot exceed the licensed metric without incurring more cost.

In essence, engines license the functionality and its volume of use, whereas named users license the people accessing the system.

How S/4HANA Changes the Mix:

In SAP S/4HANA (the latest ERP platform), many engines that were separate in the old ECC system are now bundled into the core license. S/4HANA’s core license (often called the Digital Core or Enterprise Management) includes a lot of functionality out of the box that used to be sold separately.

For instance, basic warehouse management and basic transportation management are included in the core. However, not everything is free: certain high-value add-ons remain separate engines even in S/4HANA.

Examples include SAP Payroll, advanced Treasury and Risk Management, and industry-specific solutions such as IS-U (Utilities) or Oil & Gas modules.

These still carry their own engine licenses and can be quite expensive. So, while S/4HANA has reduced the number of separately licensed engines by packaging more into the core, you still need to be mindful of the big engines that are not included.

Suppose your company uses one of those (for example, a utility company running SAP IS-U for billing, or a large enterprise running SAP Payroll for thousands of employees). In that case, those engines will be key cost drivers in your S/4HANA landscape.

Read how licensing works, SAP S/4HANA License Models – Perpetual vs Subscription (CapEx vs OpEx).

Cost Contribution in ECC vs. S/4HANA

How much of your SAP cost comes from users versus engines? It often depends on whether you’re on the older ECC system or S/4HANA, and how your contract is structured (perpetual licenses vs. subscription cloud).

• In SAP ECC (legacy ERP): It was common for named user licenses to account for roughly 30–40% of the total license cost, with the remaining 60–70% coming from engine licenses. ECC environments often had many add-on modules (engines) licensed separately – for example, if you ran ECC plus CRM, SRM, APO, etc., each had its own engine license. Thus, engine fees could easily dwarf user fees in large installations. Users still represented a significant chunk, but typically the specialized packages were the bigger portion of spend.
• In S/4HANA On-Premise: The balance is still a mix of user and engine costs, but there is more consolidation in the core license now. Many capabilities that were separate in ECC are included in the S/4HANA Enterprise Management license by default. This means that, for some companies, the proportion of costs going to engines might decrease relative to ECC. You might find, for instance, user licenses now constituting a bit higher share of the cost because you don’t need to pay extra for certain modules. However, plenty of engines remain (as mentioned, things like Payroll, advanced planning, industry add-ons), so engines can still easily represent a large portion of spend – often at least half of the cost in an on-premise S/4HANA scenario. In other words, S/4HANA simplified some licensing, but you must still budget for engines beyond the core.
• In S/4HANA Cloud (RISE with SAP): The picture changes because SAP offers an all-in-one subscription model. A RISE subscription generally bundles the software, infrastructure, and many add-on capabilities into one annual fee. Many engine fees are wrapped into the subscription tiers you purchase. Instead of buying, say, a Payroll engine license separately, SAP might include the rights to use Payroll up to a certain capacity as part of your cloud subscription (depending on your package level). This can simplify budgeting – you have a single contract line item covering multiple functionalities. But be cautious: even in RISE, there are often usage limits or caps written in the contract. For example, your subscription might include SAP Payroll for up to 5,000 employees. If you exceed that (say your company grows to 6,000 employees), you may hit a trigger where SAP will charge a true-up or require you to move to a higher subscription tier. The cloud model hides engine costs but doesn’t eliminate them – it just changes how they are charged (periodically instead of upfront) and how they are enforced (by contract limits rather than separate licenses).

Example: To illustrate how engines can dominate costs, consider a company using SAP for HR and payroll. They might have a total of 200 SAP users, which they license as a mix of Professional and ESS users.

That might cost, hypothetically, $500k in user licenses. However, if the company has 10,000 employees on SAP Payroll and the Payroll engine is licensed at $100 per employee, that engine alone would cost $1,000,000 – dwarfing the named user costs.

In many cases, a single large engine (like Payroll or an industry solution) can outweigh all your user licenses.

This is why understanding engine metrics is so important; business growth (hiring more employees, processing more orders, etc.) can send your SAP costs up significantly even if you never add a single new user.

For strategies, read SAP S/4HANA Licensing Overview: Models, Metrics, and Migration Strategies.

Named User License Optimization

Managing named user licenses is all about making sure you have the right number of licenses and the right types assigned to people.

There are a few common risks that lead to overspending on user licenses: over-provisioning high-level licenses (giving everyone a Professional license by default, even if many could do their job with a cheaper license), failing to remove or reassign licenses when users leave or are inactive, and maintaining redundant or duplicate user accounts. Any of these issues means you’re paying SAP for more user licenses than you actually need.

Strategies to optimize user licensing:

• Audit and analyze usage regularly: Use SAP’s license administration tools (such as LAW or user reports) to identify inactive accounts and check each user’s activity against their license type. Regular internal audits help catch cases like someone with a Professional license who hasn’t logged in for 6 months (which might indicate the license can be reclaimed or the user left the company).
• License “recycling”: Reassign unused licenses instead of buying new ones. When an employee leaves or no longer requires SAP access, remove their assignment and free it up. You can then allocate that license to a new hire or another user who needs it. This practice prevents license bloat.
• Rightsize user types: Scrutinize the roles and authorizations of each user to ensure they have the cheapest license type that still covers their needs. If you discover that a group of users assigned as Professional are only using very basic transactions, consider downgrading them to a Functional or ESS license. Likewise, avoid the mistake of giving, say, all contractors developer licenses if only a few need that level of access.
• Negotiation angle – volume discounts: When purchasing a large number of user licenses (for a new implementation or a big expansion), don’t accept the list price. SAP will often agree to bundle user licenses into volume packs at a discount. For example, if you need 1,000 more user licenses, push for a bulk discount or a bundled price instead of paying each license individually. Also, consider enterprise license agreements that cover all users at a flat rate if it fits your situation – sometimes SAP can offer better terms if you commit to covering your whole workforce or a big number in one go.

By actively managing named users, companies can often reduce their user license count by 10–30% through cleanup, ensuring they are not overpaying for higher-tier licenses when a lower-tier would suffice.

This directly translates to cost savings year over year (including reduced annual maintenance fees, which are typically a percentage of the license cost).

Engine License Optimization

Engine licenses require a different management approach because they’re tied to usage metrics. The primary risk with engines is uncontrolled growth in whatever metric they use, leading to unexpected costs.

If your usage outruns what you have licensed, SAP can hit you with a true-up (an additional license purchase to cover the overage) or, worse, an audit finding of non-compliance.

Another risk is ambiguous metric definitions – sometimes the way SAP defines the metric in the contract can be broad, causing you to count more than you anticipated.

For instance, an engine licensed by “annual revenue” might, unless negotiated, count all revenue of a division even if not all of it flows through SAP. Such nuances can inflate your usage count and cost.

Strategies to optimize engine licensing:

• Negotiate clear metric definitions: Don’t accept vague or all-encompassing definitions of an engine’s metric. If you’re licensing by something like “number of employees” or “annual orders,” make sure the contract clarifies exactly which employees or orders count. Exclude anything irrelevant. For example, if you only use SAP for one business unit, ensure the metric is scoped to that unit’s metrics, not company-wide numbers. Precise definitions can prevent over-counting and unfair charges.
• Include buffer thresholds: A smart negotiation tactic is to build in a buffer or grace allowance for the metric. This means if you go a bit over the licensed amount, you won’t immediately have to buy more. For example, you might negotiate that the license covers up to 110% of the purchased metric before additional fees kick in. This 10% buffer helps absorb minor growth or seasonal peaks without triggering an immediate true-up. It’s essentially wiggle room in the contract that can save money if you slightly exceed expectations.
• Monitor and model usage: Just as you audit user licenses, you should regularly measure the usage of each engine against its licensed metric. SAP provides some tools and reports for this, and you can also use internal analytics. By keeping an eye on the trend (e.g., are we getting close to our limit of 1 million order lines per year?), You can proactively manage usage or plan for an increase. Before any negotiation or renewal, model different scenarios – what if your business grows 20%? What if you acquire a company? – to see how engine license needs would change. This prepares you to discuss future capacity with SAP before it becomes a compliance issue.
• Negotiation angle – bundle and protect: Engine licenses are often highly negotiable on price because list prices are steep, and many customers push back. If you plan to purchase multiple engines or additional capacity for several metrics, negotiate them together as a package deal – this often yields steeper discounts. For example, bundling the purchase of a Treasury engine license with an expansion of your CRM engine license can give SAP sales more incentive to cut you a deal on both. Additionally, try to include a “shelfware swap” clause in your agreement. Shelfware refers to licenses you purchased but ultimately did not use. A swap clause would let you exchange an unused engine license for a different one of equal value, or credit its value toward future purchases. This way, if one module’s usage doesn’t grow as expected (and the license sits idle), you’re not stuck with it forever – you can repurpose that investment into something else you need. Not all vendors agree to this, but it’s worth asking for in large deals.

By demystifying the metrics and actively negotiating these terms, you can prevent engines from becoming runaway costs.

Engine licensing will always scale with business activity. Still, with good contract guardrails and monitoring, you can keep surprises to a minimum and ensure you’re paying for genuine business value, not accidental overages.

For insights, read Navigating ECC to S/4HANA Transition: License Migration Strategies & Negotiation Playbook.

SaaS vs. On-Premise Differences

Licensing in cloud vs. on-premise environments brings additional considerations.

With S/4HANA, you might choose a traditional on-premise model (buy licenses and run the software yourself) or a SaaS model like RISE with SAP (a subscription where SAP hosts and manages the software).

In a RISE (S/4HANA Cloud) scenario, many engine costs are baked into a single subscription fee. You don’t individually license each engine – instead, SAP gives you a package that includes a certain scope of modules.

For instance, your RISE contract might include core S/4HANA modules plus SuccessFactors, Ariba, or other cloud services, all for one price.

The key difference is you’re not paying per engine separately, and you’re not worrying about named user categories in the same granular way (often, cloud uses a concept of Full User Equivalents or similar). However, the trade-off is that you have to be very clear on what that subscription covers.

Ensure the contract spells out any limits (like how many users or how much volume is included). If you exceed those limits in a cloud environment, the remedy is typically to move up to a higher subscription tier or face overage fees at renewal.

Since cloud contracts are usually for a fixed term (e.g., 3 years), you want to avoid mid-term surprises by anticipating usage growth.

In an on-premise model, you have more granular control and responsibility. You’ll be managing named user licenses and each engine license individually.

This requires more hands-on effort to track compliance, but it also gives you flexibility to drop or add specific licenses as needed.

The negotiation in on-premise deals revolves around upfront purchase discounts, maintenance terms, and usage definitions (as discussed above). On-premise also means if you optimize and run things efficiently, you keep the savings (unlike cloud, where the cost is fixed per period regardless of usage).

Negotiation tip: If you’re considering RISE or any cloud offering, scrutinize which engines or services are truly included and which might cost extra. Sometimes “everything included” has caveats – e.g., basic analytics might be included, but advanced planning might not be.

Clarify this upfront and negotiate for inclusion of critical engines you know you’ll need, to avoid needing an add-on later at a higher price. Conversely, for on-premise deals, use the fact that you have alternatives (like staying on-prem or third-party cloud hosting) as leverage.

SAP often pushes cloud subscriptions, so if you show willingness to stick to on-prem, you might negotiate better terms either way. The two models can be played against each other to some extent – the key is aligning with your business’s needs and ensuring whichever model you choose, you’re not paying for unnecessary components.

Cost Drivers Comparison

To summarize the two cost drivers side by side, the table below compares Named User licensing versus Engine/Package licensing in terms of what they’re based on, their typical share of costs, the risks they pose, and ways to optimize each:

(Note: In a RISE/Cloud subscription, these distinctions blur – many engines are bundled into the subscription, and the cost breakdown between users vs. engines is hidden. Still, usage limits on engines may exist in the contract.)

FAQs

• Do I still pay for engines in S/4HANA? Yes. Even though S/4HANA’s core comes with more functionality out of the box, certain components (like Payroll, advanced Treasury, industry solutions, or even the HANA database license if you’re on-prem) are still separate. They must be paid for on top of the base S/4HANA license. Always check which modules are included in your S/4 package and which are add-ons.
• What happens if I exceed an engine’s licensed metric? Typically, you will be required to purchase additional capacity – often immediately if discovered by an audit, or at the next true-up/renewal. This could mean buying the next tier of that engine license. For example, if your license covers up to 10,000 orders and you process 11,000, SAP will expect you to buy more. It’s wise to negotiate a buffer or grace in the contract, or at least have a plan with SAP that small overages won’t result in punitive costs. Otherwise, any growth over your entitlement is essentially a non-compliance that SAP can charge you for.
• Which tends to be more expensive – users or engines? It depends on your SAP usage, but in many cases, engines dominate. Engines can be more expensive, especially in industries or scenarios where extensive SAP functionality is utilized. For example, a manufacturing company using SAP may have expensive engines for supply chain, production planning, etc., which cost more than the users. However, in a smaller or more straightforward implementation, user licenses might be the majority cost. Generally, when specialized engines (industry solutions, large HR/Payroll base, high transaction volumes) are in play, those engine fees outpace the named user fees. It’s important to analyze your own license portfolio to see where the big numbers are.
• Are engines included in RISE (SAP’s cloud subscription)? Many are, but be cautious. RISE with SAP bundles a lot of components under one contract. For instance, it might include the HANA database, analytics, and several common engines as part of the service. You won’t see a price for each engine – you’ll have one bundle price. However, the contract often specifies what usage of each is considered within fair use. If you exceed those, SAP may require an upgrade to a higher tier. Additionally, some highly specialized products may still be separate, even in a cloud context. Always clarify with SAP which engines/services are part of your RISE subscription and what the limits are. Don’t assume everything is unlimited.
• Can I swap or drop unused engine licenses (shelfware)? In general, SAP doesn’t automatically let you swap products, but you can negotiate this upfront. If you have unused licenses (shelfware), you might approach SAP to repurpose that value. Sometimes during a contract negotiation or a migration to S/4HANA, SAP will allow a one-time exchange: e.g., you have an engine you’re not using, they might credit some portion of its value toward a new purchase. It’s not guaranteed and usually needs to be agreed upon in writing beforehand. Therefore, it’s smart to include a clause in big deals that allows you to swap out a certain number of licenses or products by a future date if they turn out unused. At the very least, if you identify shelfware, you can try to negotiate a maintenance holiday (stop paying support on something not used) or a give-back for credit. These require tough negotiation, but large customers have had success in reducing shelfware costs.

Five Expert Recommendations

To wrap up, here are five key recommendations from SAP licensing experts to manage and reduce your costs effectively:

1. Perform regular license audits – Before any SAP contract renewal or S/4HANA migration, thoroughly audit both your named user license assignments and your engine usage against entitlements. This baseline will reveal where you’re over-licensed or at risk of non-compliance.
2. Negotiate metrics, not just price – Don’t just focus on getting a discount; make sure the definitions and terms in the contract favor you. Insist on clear, narrow definitions of engine metrics and remove any ambiguities that could let SAP count more usage than you intended.
3. Build in usage buffers – Aim to include a buffer (e.g., 10% extra capacity) for key engine metrics in the contract. This prevents small accidental overages from immediately costing you more. It’s a safety net that can save money if your business slightly exceeds forecasts.
4. Bundle and leverage volume – When possible, negotiate user and engine licenses together. Use your total SAP spend as leverage. For example, negotiate a deal for a set of engines or a mix of users and engines at once – SAP is more likely to give attractive discounts on a larger deal. Also, remember that adding more products (such as shifting more of your business onto SAP) can be a bargaining chip to secure better terms, so use it strategically.
5. Be cautious with “all-in” cloud deals – If you go with RISE or another SaaS bundle, scrutinize the fine print. Ensure you understand what’s truly included and any limits. Ask SAP directly: “What if our usage grows beyond this level? What are our options and costs?” Get it in writing. Cloud bundles can simplify costs, but you don’t want to be caught off guard by a cap that you didn’t know about. It’s better to clarify or negotiate higher limits now than to face a surprise bill later.

By taking these steps, your organization can gain control over SAP license expenditures. Whether it’s optimizing the mix of named user licenses or negotiating favorable terms for engine licenses, a proactive approach will help you contain costs and avoid the classic traps of SAP licensing.

Always remember that SAP contracts are negotiable – with the right knowledge and preparation, you can significantly tilt the terms in your favor and ensure you’re only paying for what you truly need.

Read about our SAP Advisory Services.

Do you want to know more about our SAP Services?

Please enable JavaScript in your browser to complete this form.

Name *

First

Last

Email *

Company

Message *

Submit