SAP Renewal Case Study – U.S. Insurance Group Saves $5M in Contract Negotiations
Background
A Fortune 500 insurance conglomerate based in the United States was approaching a critical SAP contract renewal.
The company, which spans life insurance, property & casualty, and retirement services, had been an SAP customer for over a decade. Its SAP landscape included core ERP, industry-specific modules, and several acquired licenses from past mergers.
As the renewal neared, the CFO’s team identified that annual SAP maintenance fees had ballooned to an unsustainable level, partly due to licenses and components that were no longer fully utilized.
The insurance group saw the renewal as a chance to right-size their SAP agreement and cut costs, but SAP’s initial renewal terms offered little relief.
Challenges
The challenges in this renewal were multifaceted:
- Maintenance Cost Creep: Each year, the company paid 22% of the license value in maintenance, and as their license inventory grew over time, so did the support bill. The projected renewal would lock in another 3-5 years of high support costs, exceeding $15 million annually. Many stakeholders felt they were paying for shelfware – support on licenses that provided no business value.
- Shelfware and Duplicative Functionality: An internal audit revealed that roughly 20% of the SAP user licenses and several engine products (like an old SAP CRM module) were unused or had been supplanted by newer systems. Yet, they were still incurring maintenance fees. Eliminating or swapping these licenses was a priority.
- New Initiatives on Horizon: The insurer was considering new SAP investments, like SuccessFactors for HR and SAP Analytics Cloud, but the budget was constrained. SAP’s sales team was pushing a big bang renewal – essentially “renew everything as-is and buy new licenses on top.” The client needed a smarter approach to fit new projects in without simply inflating costs further.
- Third-Party Support Temptation: The company had a viable (if nuclear) option to leave SAP’s maintenance altogether in favor of a third-party support provider. This was a bargaining chip, but using it risked straining the SAP relationship if not handled carefully.
Solution (How SAP Licensing Experts Helped)
- License Portfolio Assessment: SAP Licensing Experts conducted a thorough review of the group’s existing SAP licenses and usage. They pinpointed exactly which user licenses and components were unused or redundant. For example, they found thousands of Employee Self-Service user licenses not being assigned, and an old SAP BusinessObjects deployment that had been phased out.
- Retirement & Swap Strategy: With this insight, the team crafted a proposal to retire a portion of the unused licenses. They negotiated with SAP to allow the customer to terminate maintenance on shelfware licenses – a normally difficult ask. In cases where SAP was resistant to dropping licenses, the experts proposed swapping their value: the monetary value of the unused licenses would be credited toward new software the insurer wanted (like SuccessFactors). This way, SAP could preserve revenue by selling new products, while the customer avoided double-paying.
- Maintenance Discount & Freeze: Leveraging the possibility of third-party support, SAP Licensing Experts pressed SAP for a maintenance discount. They achieved a concession where SAP provided a one-time credit (effectively reducing the maintenance base) in exchange for a renewed multi-year commitment. Additionally, they negotiated a freeze on the annual support uplift – meaning no annual increase on maintenance fees for the next three years, a significant break from the typical 3-4% escalations.
- Bundling New Investments: The renewal negotiation was tied to a purchase of SuccessFactors and Analytics Cloud subscriptions, but on terms favorable to the client. Because the insurer was streamlining its existing licenses and showing a willingness to invest in new SAP solutions, SAP offered aggressive discounts on the new products and offered significant services incentives. This bundling approach turned what could have been a pure cost-cutting exercise into a balanced deal: the client reduced run-rate costs, and SAP secured future-oriented business.
- Contract Clarity: Finally, the experts ensured the renewed contract documented which licenses were retired and which were added. They added clauses that allowed the insurer some flexibility to drop additional licenses in future renewal cycles if they remained unused, providing a path to continually optimize the SAP spend.
Outcome and Savings
When the dust settled, the insurance group achieved over $5 million in savings on its SAP agreements over the next four years. This included an immediate reduction of the annual maintenance bill and avoidance of projected increases.
The company reduced its SAP support costs by about 25% from the prior run-rate. These were genuine SAP contract savings that freed up budget for innovation.
Crucially, the deal also funded new capabilities: the insurer proceeded to implement SuccessFactors using the credits and discounts negotiated, effectively modernizing its HR platform at minimal net new cost. The company was able to both cut expenses and move forward on strategic initiatives.
By taking a proactive stance in the renewal and leveraging expert SAP license negotiation, the insurance firm transformed a routine contract extension into a strategic realignment of its SAP usage and spend. The CIO noted that the relationship with SAP emerged stronger, not weaker – SAP now had a happy customer investing in new solutions, and the customer had an affordable path forward.
“This renewal could have been just another cost increase, but instead we turned it into a win-win. We trimmed the fat from our contract and channeled that value into new SAP capabilities. In the end we’re saving millions and advancing our tech stack – something we wouldn’t have achieved without savvy SAP contract negotiation support,” — CIO, U.S. Insurance Group
Read about our SAP Negotiation Services.
