Cracking the S/4HANA Licensing Code in 2025 – Executive Strategies for Cost, Compliance & Cloud Readiness

Cracking the S/4HANA Licensing Code in 2025 – Executive Strategies for Cost, Compliance & Cloud Readiness

Introduction:

SAP S/4HANA licensing in 2025 has become a strategic puzzle that CIOs and CFOs must solve to keep IT costs optimized and business plans on track. The combination of SAP’s push toward cloud subscriptions, impending deadlines for legacy systems, and new consumption-based models means executives can no longer treat licensing as a back-office issue.

Instead, the S/4HANA license strategy needs to be elevated to the boardroom as a source of competitive advantage. This playbook cuts through the complexity and vendor-friendly jargon.

In the pages that follow, we’ll map a clear decision path from your business objectives through risk assessment to the selection of the right S/4HANA licensing model for 2025 and arm you with negotiation and governance tactics to turn SAP’s rules into your leverage.

The goal is to make your S/4HANA licensing strategy a proactive tool that controls costs, guarantees compliance, and ensures cloud readiness on your terms.

No fluff, no theory, this is an executive briefing with actionable strategies. Each section concludes with a CIO takeaway box that summarizes the key actions.

Let’s dive into why 2025 is a make-or-break moment for SAP customers and how you can crack the licensing code to your benefit.

Why 2025 Is a License Tipping Point

SAP’s aggressive cloud-first strategy and looming ECC deadlines have made 2025 a pivotal year for ERP licensing decisions.

ECC Support Cliff and Cloud Pressure: SAP’s legacy ERP (ECC) faces mainstream support ending in 2027, with costly extended maintenance only buying time until 2030.

That ticking clock puts 2025 in the spotlight – enterprises not yet on S/4HANA are feeling the heat to decide their path.

SAP’s sales teams are in overdrive, touting “last chance” conversion incentives and RISE with SAP contract terms to lure customers into S/4HANA subscription pricing deals sooner rather than later.

The vendor’s revenue model is shifting decisively to cloud subscriptions, so 2025 is when SAP is pulling out all the stops: expect extra pressure, bundled offers, and dire warnings about falling behind.

At the same time, some S/4HANA transitional aids are expiring (for example, certain compatibility packs that let S/4HANA use legacy ECC components will cease by the end of 2025).

If you’ve been relying on those, 2025 is truly a licensing reckoning – continuing past these dates could put you in technical non-compliance. SAP is effectively forcing the hand of any remaining ECC customers with a mix of stick (support deadlines) and carrot (declining conversion credits that reward earlier moves).

Risk of the “Panic Buy”: With the clock ticking, there’s a real danger that companies make rushed, fear-driven purchases in 2025. A “panic buy” might mean overcommitting to a pricey S/4HANA package or cloud subscription without fully aligning it with your business needs, just to avoid imagined worst-case scenarios.

SAP account execs know your pain points and may push deals that solve their quota targets more than your strategic goals – for instance, a one-size-fits-all RISE subscription that bundles far more than you require.

The result of panic buying can be shelfware (unused modules/users) and contractual handcuffs that are hard to undo. Executives must approach 2025 decisions with a cool head and hard data.

Yes, the pressure is real: delay too long and you risk losing favorable conversion incentives (early adopters got up to ~90% license value credit; by 2025, credits might be around 70% and dropping each quarter).

But acting in haste could lock in high costs or inflexible terms that haunt you for years. The key is to leverage SAP’s urgency to your advantage – negotiate aggressively. At the same time, SAP is motivated, but base your moves on a deliberate strategy (as we cover in the next sections), not on vendor scare tactics.

Shifting Revenue Model – Know SAP’s Game:

Part of why 2025 is a tipping point is that SAP’s business model is undergoing significant changes. Traditional perpetual licenses with annual maintenance are giving way to “all-in” subscriptions and cloud-based metrics. By 2025, S/4HANA licensing offers might come bundled with cloud infrastructure or even transformed into transaction-based licensing models (like charging by business documents or API calls).

SAP is experimenting with monetizing new areas – for example, charging separately for AI and automation features that were previously included. Executives need to recognize that SAP’s end goal is predictable, recurring revenue.

Every proposal you get in 2025 will be angled toward that goal, whether it’s pushing you into SAP Digital Access 2025 document licensing or multi-year cloud commitments.

This awareness is power: when you know SAP’s motivation, you can better counterbalance it with your terms (such as insisting on price locks or flexibility clauses, which we’ll discuss).

In short, 2025 is the year to engage with SAP on licensing from a position of knowledge and strength – the stakes have never been higher, but neither has your leverage if you play it right.

CIO Takeaways:

• Don’t let SAP’s deadlines panic you. Use the ECC 2027 end-of-support and SAP’s 2025 sales push as leverage to secure better terms, not as a reason to sign a rushed, bloated deal.
• Be strategic with timing. The sooner you commit to S/4HANA (if it aligns with your roadmap), the more credit and incentives you will receive – but always ensure the deal aligns with your actual business needs and transformation schedule.
• Understand SAP’s agenda. SAP wants cloud subscriptions and recurring revenue; knowing this, you can negotiate cost protections and flexibility into any 2025 agreement to guard against vendor-driven cost increases.

Building Your S/4HANA Licensing Strategy from Business Objectives

Licensing shouldn’t drive your IT strategy; it should serve it. The savvy CIO will reverse-engineer their S/4HANA license needs from their business objectives and transformation roadmap – not the other way around.

In practice, this means starting with where your enterprise plans to go (cloud adoption, AI, new markets, M&A, etc.) and shaping an SAP license plan to fit those moves efficiently.

Reverse-Engineer from the Roadmap:

Begin by mapping out your next 5-7 years of business and technology initiatives. Are you aiming for aggressive global expansion? Acquiring companies? Implementing AI-driven automation across core processes? Each of these has direct implications for the S/4HANA license strategy.

For example, a major expansion in Asia might mean hundreds of new users – do you have a licensing model that scales globally without doubling the cost?

Heavy investment in RPA and AI could mean a surge in system usage by non-human actors – have you accounted for SAP Digital Access document licenses that those bots will consume?

By identifying these big-picture goals upfront, you can align licensing with strategy: perhaps an enterprise-wide agreement that pools licenses across geographies is best for global growth, or a flat-rate digital access license is wise if you plan to deploy thousands of IoT sensors feeding SAP.

The main point is that your planned business outcomes should dictate how you structure the licenses, not the menu of SAP products. This flips the conversation from “What is SAP selling?” to “What does our company need to enable our strategy cost-effectively?”

Align Licensing with AI, Automation, and Innovation:

2025 isn’t just another year – it’s one where technologies like AI and advanced analytics are moving from experimentation to core operations.

Executives must ensure their S/4HANA licensing accounts are sufficient to accommodate AI-driven usage growth.

For instance, if you plan to deploy an AI assistant that queries SAP data or automates decisions, note that this could be considered indirect usage or may require additional licenses for the AI users.

Licensing models can quickly turn your AI success into a cost overrun if every bot or algorithm-triggered transaction quietly eats into your license limits.

The strategy here is twofold: first, choose license models that accommodate automation (some models charge per user, which might exclude non-human usage – meaning you’d need digital access licenses instead; other models might be consumption-based, which directly count transactions from any source). Second, proactively negotiate or plan for add-on licenses for new tech before you deploy it.

The worst scenario is rolling out a game-changing AI or e-commerce platform and later finding that it has generated a million document transactions that SAP now wants to bill for.

A CIO-level strategy might be to negotiate a contractual buffer or clause for new technology adoption, ensuring, say, that any new interfaces or AI-driven activities introduced are covered under existing license fees up to a certain threshold.

By aligning your S/4HANA licensing with innovation plans, you protect those initiatives from becoming victims of their success.

Global Expansion, M&A, and Flexibility:

Business objectives, such as entering new markets or acquiring companies, pose special challenges to licensing. If your company plans to double its user base through growth or M&A, a traditional named-user license model could result in costs skyrocketing linearly.

Here, consider hybrid S/4HANA licensing approaches or an enterprise license agreement that allows a true-up at a pre-negotiated rate for new users.

Similarly, if divestitures or downturns are possible, you don’t want to be overcommitted – maybe a subscription with the ability to scale down (or at least shorter renewal cycles) aligns better than an irreducible perpetual license count.

The key is to bake flexibility into the plan from day one. In an M&A scenario, can you transfer or reuse licenses from one entity to another without fees?

If you’re on a subscription (like RISE) and you sell a division, what happens to those subscriptions – can you shed them, or are you stuck paying?

Strategic licensing means anticipating these moves: build in contractual rights to reallocate licenses globally or adjust volumes after major business changes.

That way, your SAP agreement supports your corporate strategy, instead of constraining it. Executives who align licensing with their business plans will find that they can execute decisions (such as expanding, pivoting, or innovating) without stopping to renegotiate with SAP each time – a true competitive advantage.

CIO Takeaways:

• Start with business strategy. Define your transformation goals (cloud migration timeline, AI adoption, market expansion) and let those needs dictate the type, volume, and structure of S/4HANA licenses you pursue – not the other way around.
• Plan for new tech now. If automation, AI, or IoT are on the roadmap, model their impact on licenses (e.g., digital access for bots, extra data volume). Negotiate provisions upfront to prevent innovation from triggering unplanned licensing costs.
• Ensure flexibility for change. Choose licensing models that can flex with M&A or global growth – e.g,. Enterprise agreements or pooled licenses – so that adding or removing users and entities doesn’t require a whole new contract (or huge fees).

The Three Licensing Control Levers

To master S/4HANA licensing, executives should focus on three primary control levers at their disposal: cost, compliance, and flexibility. Think of these as the dials you can tune during negotiation and contract design to bend the deal in your favor.

A successful licensing strategy will deliberately balance all three, eliminating cost inefficiencies, mitigating compliance risks, and preserving flexibility for the future. Let’s break down each lever and the tactical plays available.

Cost Levers – Taming the Total Spend

When it comes to cost, the goal is simple: pay only for the value you need, at the best price possible, with protections against future price hikes. One cost lever is volume commitments. SAP, like any vendor, offers tiered discounts – bigger bundles mean lower unit prices.

As a CIO negotiating a high-value S/4HANA license strategy, you can leverage this by aggregating demand. Instead of buying licenses piecemeal, consider a multi-year volume commitment across your whole enterprise.

For example, negotiate pricing based on an assumption of, say, 20,000 users over three years (even if you initially deploy 15,000).

In exchange, demand steep discounts (enterprise-tier pricing) now. You lock in a better rate, and SAP locks in your longer-term business – a win-win if your growth is predictable. Another cost lever is cross-product bundling.

SAP has a vast portfolio (ERP, procurement, HR, analytics). If you foresee needing other SAP solutions (SuccessFactors, Ariba, BTP, etc.), bundling them into one negotiation can yield a bulk discount far beyond what you’d get buying each later in silo.

Be cautious: only bundle what aligns with your roadmap (don’t get sold “shelfware” just to inflate the deal size). But if, for instance, you’re planning an S/4HANA migration and know SAP’s cloud analytics or procurement system is in your 3-year plan, negotiate them together.

You might secure an enterprise license agreement that caps the cost across all those products. Lastly, insist on an enterprise cap or value cap – a clause that states your total spend for certain usage won’t exceed a fixed figure.

For example, an enterprise metric: no matter how many self-service users you ultimately have, the fee won’t exceed $X. This cap turns an uncertain cost into a fixed, budgetable number.

Compliance Levers – Staying Audit-Proof on Your Terms

Compliance levers are designed to reduce the risk and impact of SAP audits or compliance issues. Here, knowledge is power, and prevention is priceless.

A key lever is addressing SAP Digital Access (indirect use) rules head-on in your contract. Digital access (document licensing) is a notorious area where companies get blindsided by audits.

As an executive, you should aim to negotiate clarity and limits into your agreement: explicitly enumerate which interfaces, third-party systems, or use cases are covered by your license fees.

For example, list out the non-SAP systems (e.g. your web store, mobile apps, IoT platform) that create SAP documents and get SAP to acknowledge these are authorized under your current licenses. This acts as an indirect use immunity for those scenarios, preventing SAP from later saying “Gotcha, you owe us for those interactions.” Another compliance lever is tightening the audit clause protections.

SAP’s standard audit clause is usually broad – they can audit you and charge list price for any shortfall. You have room to negotiate here: ensure audits are infrequent (no more than once every 12 or 24 months, with ample notice), and include a friendly true-up mechanism (e.g., any under-licensing discovered can be purchased at your pre-negotiated discount, not at full list price).

This removes the punitive sting of an audit and turns it into a more routine adjustment. Also consider a “cure period” – if an audit finds something, you have 60-90 days to address it before SAP can levy charges. Together, these measures protect you from ambush and give you control of compliance remediation.

Beyond audits, contract carve-outs are a powerful lever. Carve-outs refer to the explicit exclusion of certain uses from licensing requirements. For instance, if you have a read-only reporting server that pulls data from S/4HANA for analytics, carve it out by stating that access via that system does not require a separate user license. Another common carve-out: development and test systems.

You can negotiate that users who only access non-production systems don’t need full licenses (SAP sometimes allows this, sometimes not – but ask). Each carve-out you secure narrows the gray areas that SAP could exploit. The overarching strategy is to preemptively close compliance traps in writing.

Don’t leave ambiguous scenarios to be debated during an audit; decide them now in your favor. By using compliance levers, you essentially disarm SAP’s strongest weapons – surprise audit findings and indirect usage claims – so your team can focus on driving value, not fighting fires.

Flexibility Levers – Future-Proofing and Agility

Business moves fast, and your SAP contract must keep up. Flexibility levers ensure that as things change – up, down, or sideways – your licensing can adapt without punishing costs or renegotiation nightmares.

One vital lever is scaling rights. In cloud subscriptions like RISE, SAP naturally allows you to easily increase users or capacity (and pay more), but decreasing is often the issue. Try to negotiate downscale rights at renewal, if not annually: for example, the right to reduce your user count by 10% with no penalty each year if needed.

Even if SAP won’t agree to full elasticity, push for short contract durations (e.g,. 3-year subscription terms instead of 5) so you have more frequent opportunities to resize. In a perpetual license scenario, ensure you have rollover usage – if you drop usage in one area, you can redeploy licenses elsewhere.

This might involve having a license metric, such as FUE (Full User Equivalents), which is a pool that can be reassigned as needed, rather than fixed, named users tied to individuals.

Swap rights are another flexibility tool. Businesses evolve – perhaps you licensed a module (such as SAP Transportation Management) that, in a few years, you realize is underutilized, while you now need another module (like Advanced Planning). Negotiate a swap clause: the ability to swap a license for an equivalent-value license of another product. This prevents you from being stuck with yesterday’s choices.

SAP may allow swaps at certain times (such as only at renewal) or with a conversion fee, but having it stipulated beats begging for it later. Also, consider hybrid use and migration clauses. If you are transitioning from on-premise to cloud (or maintaining a hybrid landscape), insist on dual-use rights – the ability to run the old ECC system in parallel with S/4HANA during migration without incurring double costs.

SAP often grants this for limited periods if negotiated (e.g., 12-18 months of overlap usage). Similarly, if you choose RISE for some systems and keep others on-premises, ensure the contract acknowledges this hybrid scenario and possibly allows porting licenses between environments if you later consolidate.

The ultimate flexibility lever is an exit strategy.

Cloud contracts can be sticky – so think ahead to the end of the term. Try to include options such as: the right to transition to on-premise licenses if you leave RISE (with a credit for what you’ve paid), or at least clauses about data extraction and cooperation if you switch providers.

While SAP may not give a full escape route, raising the topic signals you won’t accept a pure lock-in. By pulling flexibility levers, you keep your ERP plans from being handcuffed by today’s contract.

The ability to pivot, scale, or switch gears ensures your SAP investment can continuously align with the business – whatever the future brings.

CIO Takeaways:

• Use cost levers to drive value. Bundle your needs to get volume discounts, negotiate enterprise caps on spend, and commit strategically to lock in low unit prices – ensure every dollar spent ties to real business value.
• Defuse compliance risks upfront. Don’t wait for an SAP audit surprise. Bake in clauses that cover known interfaces and indirect use, and demand fair audit terms (frequency limits, cure periods, discounted true-ups) to eliminate “gotcha” scenarios.
• Maximize flexibility. Demand provisions to scale down as well as up, to swap unused licenses for needed ones, and to allow hybrid or transitional use. A well-architected SAP contract should adapt to your business, not hinder it.

Digital Access in 2025 – The Unseen Cost Driver

In 2025, SAP Digital Access (document-based licensing for indirect use) has firmly emerged as the silent killer of SAP budgets or a manageable cost, depending on whether you proactively address it. Many executives are still waking up to the reality that licensing isn’t just about human users anymore.

It’s about documents: sales orders, invoices, API calls – the digital footprints of automated processes. As your enterprise embraces APIs, RPA bots, customer portals, and IoT devices, these non-human agents can generate a tidal wave of SAP documents.

S/4HANA compliance risks now hide in places you’d least expect: a web order entry system that suddenly spikes sales order documents during a holiday rush, or an IoT sensor network that quietly creates thousands of maintenance notifications in SAP.

If you haven’t sized and licensed this digital access, you’re essentially running up an unchecked bill that an audit will eventually present to you.

Advanced Scenarios: APIs, IoT, and Document Tsunamis:

Consider a modern automated enterprise in 2025. You might have hundreds of APIs integrating SAP with e-commerce, logistics, or AI services. Each API call that creates or updates an SAP business document (e.g., an order, a delivery, a financial entry) counts under SAP Digital Access 2025 licensing.

The same applies to robotic process automation bots that process transactions at superhuman speed, or IoT sensors that trigger events such as restocking requests in SAP. These scenarios are the new normal – and they can dwarf traditional user activity.

The cost driver here is that SAP’s digital access license often comes in blocks of documents (for example, you purchase a pack of 100,000 documents of certain types per year) or as an unlimited flat fee. Suppose your IT landscape is not closely monitoring document creation volumes.

In that case, you might sign a license assuming moderate use, only to discover an AI-driven process is pumping out 10 times more documents than anticipated. By then, you’re either out of compliance or facing a true-up that nukes your budget.

The takeaway: digital access is where a significant portion of the “indirect” usage cost now resides, and it remains unseen unless you’re looking. Smart teams in 2025 treat digital document counts like a key metric, forecasting them alongside user counts.

Flat-Rate vs. Document Packs – Taming Unpredictable Usage:

SAP offers two primary methods for licensing Digital Access: purchasing by volume (per-document packs) or an enterprise flat-rate license for unlimited documents.

Each approach has its merits and pitfalls. In a steady-state environment with predictable transaction counts, buying specific volumes can be cost-effective – why pay for unlimited if you only generate 50k documents a year?

However, many 2025 businesses are in flux: you may not be able to predict the success of a new mobile app or the uptake of an AI-based automation.

When usage is unpredictable or poised to grow explosively, a flat-rate digital access license can be your cost cap. Yes, the flat fee might be significant, but it provides certainty. You’re effectively insuring against a digital document explosion.

On the other hand, if your analysis shows only incremental growth, you could stick to block licensing but negotiate the right to true-up at the same discounted rate (avoiding SAP’s tactic of selling extra blocks at a higher price later). Another consideration: the break-even point – calculate at what volume the flat-rate becomes cheaper than cumulative packs.

SAP may even offer a Digital Access Adoption Program (in the past, a one-time flat fee deal). In 2025, even if that formal program sunsets, you can push for a custom flat deal if your usage profile justifies it.

For instance, companies heavily into IoT often lobby for an IoT-specific flat price rather than trying to count millions of tiny sensor transactions.

The guiding strategy is to choose a model that mitigates risk: if unpredictable, eliminate the risk with flat pricing; if controllable, pay for what you use, but keep an eye on potential surges.

Making Digital Access an Advantage:

A CIO can turn this potential cost driver into a strategic win. How? First, shine a light on it. Mandate an internal assessment of all systems and interfaces that generate SAP documents.

Obtain a baseline count for each document type (SAP has nine defined categories, such as Sales Order, Invoice, etc.). Project those counts forward in light of business initiatives (new channels, more automation = more docs).

With those numbers, you can often negotiate a better deal than going in blind. SAP respects data – if you come with a well-reasoned usage estimate, you’re in a stronger position to argue for an appropriate flat rate or a discount on high-volume packs.

Second, bake efficiency into design. Work with your architects to identify any high-volume scenarios that can be optimized – for example, bundling multiple updates into a single document where possible, or eliminating redundant bot actions. Reducing document generation by 10% through smarter processes directly saves on licensing costs.

Finally, treat digital access as part of your KPIs. Just as you track cloud costs or headcount, track “documents per order” or similar metrics. If it starts climbing unexpectedly, you’ll catch it long before SAP’s auditors do.

The executives who master digital access licensing will avoid nasty surprises and possibly even find leverage (“we’ve kept our indirect use efficient, so we expect top-tier pricing from SAP”). In sum, don’t sleep on digital access – manage it, and you turn an unseen risk into a controlled expense.

CIO Takeaways:

• Audit your digital usage now. Identify all non-human interactions (APIs, bots, IoT) that create SAP documents and quantify the volume – this is the basis for accurately sizing your digital access licenses.
• Choose the right model. If your indirect document count is likely to fluctuate, consider a flat-rate digital access license to cap costs. If it’s stable, consider buying volume packs but negotiate the flexibility to add more at the same discounted rate.
• Avoid indirect surprises. Make digital access metrics part of your regular IT governance. By actively monitoring and optimizing document creation, you stay ahead of SAP audits and turn indirect usage into a predictable, budgeted element of your ERP costs.

FUE Optimization Framework

SAP’s Full User Equivalent (FUE) licensing model, used primarily in S/4HANA Cloud and RISE subscriptions, standardizes various types of users into a single unit. It’s a clever way for SAP to bundle user licenses, but it can also be an efficiency goldmine for those who know how to optimize it.

Think of FUE like a currency: one FUE might equal, say, one professional user, or two functional users, or 30 self-service users (illustrative example).

Your job as an executive is to minimize the “currency cost” of your user base without hampering the business. This is where an FUE optimization framework comes into play – essentially a method for allocating and reallocating users in the most cost-efficient manner under the FUE model.

Design a Lean User Role Matrix:

Start by gaining clarity on the different user categories in SAP’s licensing. Typically, S/4HANA defines multiple user types (often labeled like Professional, Functional, Productivity, or similar tiers), each weighted differently in FUEs.

For instance, a Professional user might be considered 1.0 FUE, a Functional user 0.5 FUE, and a Self-Service user 0.1 FUE, etc.

Rather than accepting SAP’s default or your system integrator’s recommendations, design a user role matrix from the ground up based on actual job needs. List out roles in your organization (by business role, not IT role) – e.g., a customer service rep, a warehouse clerk, a department manager, an executive viewer, a data analyst.

For each role, determine the specific transactions and data access they truly require in S/4HANA. The goal is to fit each role into the lowest applicable license tier.

Perhaps you discover that 70% of your users only display reports and perform light data entry – they could be Productivity users at 0.2 FUE each, instead of all being flagged as full Professional users.

This role-rightsizing can save massively. It’s common to find that initial estimates over-provision high-level licenses “just in case,” inflating FUE consumption. Ensure that your implementation team and SAP provider accurately classify users.

And if SAP’s standard definitions don’t fit neatly, push back or get creative. E.g., if a user needs one or two features from a higher tier, consider whether a small number of shared high-level accounts or an alternative process could meet that need, allowing the rest to stay on cheaper licenses.

The matrix you design becomes your blueprint: how many of each user type you require, yielding a total FUE count that is truly aligned to business usage, not blanket assumptions.

Internal Audits and License Reclaim:

Optimization isn’t a one-and-done task. Post-go-live, usage patterns shift, organizations evolve, and what was once necessary might become overkill.

This is where internal license audits come in as a valuable tool for continuous improvement. Schedule a periodic review (at least annually, ideally quarterly) of actual user activity vs. assigned license type.

You might use SAP’s tools (like USMM/Licence Administration Workbench) or third-party software to see, for example, that 500 users with a Professional license haven’t executed any transactions that justify that level (perhaps they mostly display information).

That’s a red flag that you’re over-licensed for those folks. You can then reclassify those users to a lower tier, freeing FUE capacity. In a subscription model, this means at the next renewal, you could potentially reduce your FUE purchase or accommodate new users without increasing costs. In a perpetual model, it means you avoid having to buy more licenses when some are sitting underutilized.

Another area to watch is user accounts that go inactive – employees leave, projects end, but licenses might still be allocated.

Establish a governance step that whenever an employee with an SAP license exits, their license is returned to a pool for reuse. It sounds basic, but large firms often lose track of thousands of such accounts, effectively paying maintenance or subscription fees for ghost users.

Reclaiming FUE capacity is like finding spare budget. Also, perform role audits to ensure that new projects or system enhancements haven’t quietly elevated some users’ needs into a higher license category without your adjusting licenses.

If marketing suddenly grants a group access to advanced analytics, they may now require a different license – it’s better to adjust proactively than to be caught under-licensed. Through diligent internal audits, you keep your FUE usage lean, adapting it to actual usage and ensuring you’re not funding SAP for theoretical entitlements nobody uses.

FUE Cost Modeling and Scenario Planning:

Executives should also take the initiative with FUE numbers. When planning changes – say, adding 500 users in a new distribution center or rolling out a self-service portal to thousands of partners – model the FUE impact of different scenarios.

What if those partner users are external and can be covered by a lightweight license (or even a special license type) instead of consuming your precious internal FUEs? Or if you know a certain department’s usage will drop due to outsourcing, factor that in.

By forecasting these changes, you can often negotiate with SAP to adjust your contract mid-term (if increasing) at favorable rates, or at least know how to consolidate and offset increases with decreases elsewhere.

Some firms even negotiate a “floating” FUE model, where you true-up annually based on actual peak usage, rather than a fixed number upfront. If your usage is seasonal or project-based, that could save money. The bottom line is to treat FUE like a currency to be budgeted and optimized.

Every FUE you don’t overspend on is cash back to the business or headroom for new capabilities.

A disciplined approach to FUE management turns the model’s complexity to your advantage – you benefit from the flexibility (mixing different user types) while systematically driving down the cost per actual user through smart classification and vigilant monitoring.

CIO Takeaways:

• Right-size every user. Don’t accept blanket “Professional user for everyone” licensing – map out user roles and assign the lowest FUE-consuming license type each job can function with. This slashes your total FUE requirement without limiting the business.
• Continuously tune license allocation. Implement quarterly internal license audits to identify and rectify instances of over-licensing. Reclassify users or retire unused accounts to reclaim FUE capacity instead of buying more – keep usage and licensing tightly aligned.
• Plan and model changes. Before major workforce or system changes, model their impact on FUE consumption. Use these insights to negotiate contract adjustments or optimize license distribution, so growth in usage doesn’t mean an unwelcome bill shock.

RISE vs. Hybrid vs. Perpetual — Decision Matrix for 2025

Choosing how to deploy S/4HANA in 2025 is not just a technical decision but a strategic licensing decision with huge cost and flexibility implications.

Executives essentially face three broad options: RISE with SAP (a subscription cloud bundle), a perpetual license on traditional infrastructure (which can be on-premises or hosted on your cloud, but managed by you), or a hybrid approach that combines elements of both.

The best choice hinges on your company’s priorities, risk tolerance, and long-term strategy. Let’s break down the considerations in a decision matrix fashion, weighing Total Cost of Ownership (TCO) and strategic triggers for each.

RISE with SAP (Subscription) – Pros, Cons, and Triggers:

RISE with SAP is SAP’s flagship offer to move customers to the cloud. It packages software licenses, cloud infrastructure (SAP’s or a hyperscaler of choice), and some managed services into a single subscription fee.

The promise is simplicity – one contract, one vendor accountable for SLAs, and a faster path to transformation. From a cost perspective, RISE shifts you to an OPEX model: you pay annually and don’t own the licenses outright.

Comparative TCO: In the short to mid-term (say 5 years), RISE can be financially attractive because it may include items you’d otherwise pay separately (hardware/hosting, support, and possibly even some transformation credits).

SAP often sweetens early RISE deals with incentives such as initial subscription discounts or credits for your existing licenses (acknowledging past investments so you’re not “double paying” – although note that these credits have been shrinking each year).

However, over a longer horizon (7-10+ years), subscription costs can exceed perpetual costs if not carefully negotiated, because the meter never stops and renewal rates can increase significantly.

The strategic triggers for RISE: choose it if you value speed and simplicity over maximizing asset value. If your company has a mandate to exit the data center business, lacks extensive SAP administration talent to manage complex systems, or wants to tie the S/4HANA migration to a broader digital overhaul, RISE is compelling. It’s also favored if you want SAP to carry more responsibility – having one point of contact if things go wrong.

On the other hand, be cautious if you have heavy customization needs or regulatory requirements that SAP’s standard cloud might not easily meet; these may deter you from RISE.

A 2025 factor: SAP is pushing RISE hard, so you may get a better deal (higher discount) on RISE now than you would in a few years, when it could become the default model and less negotiable.

Perpetual License (On-Prem or Customer-Managed Cloud) – Pros, Cons, and Triggers: The classic model: you buy the S/4HANA licenses upfront (maybe via a conversion credit for your old ECC licenses) and you run the software either in your data center or on a cloud like AWS/Azure that you manage.

You pay annual maintenance (~22% of the license price) for support. TCO-wise, perpetual licenses can be cheaper over a long span if you fully utilize them and keep maintenance costs under control.

You make a capital investment, but after a certain break-even point, owning often proves more beneficial than renting. Perpetual also means you retain assets – if you ever leave SAP support or want to re-host, you still have the rights to use the software (though unsupported).

The strategic triggers to adopt a perpetual/hybrid approach: choose this path if control and flexibility are your top priorities.

Companies with complex integration, specific performance needs, or highly customized processes often find the perpetual route more forgiving – you can tailor the system extensively and upgrade on your timeline, not SAP’s cloud schedule.

Additionally, suppose you have incurred sunk costs (such as a modern data center or private cloud expertise). In that case, you may be able to leverage that instead of paying SAP’s bundled infrastructure margin.

Another trigger: if you distrust being locked into SAP’s ecosystem, perpetual gives you theoretically the option to move to third-party support down the line or at least leverage that threat in negotiations.

However, perpetual today isn’t the easy button – SAP’s innovation focus is on cloud, so on-prem customers might miss out on some rapid advancements or have to integrate cloud services anyway. And if you go perpetual but still want cloud benefits, you take on the complexity of infrastructure or a hosting provider, which can erode some cost advantages.

A key consideration for 2025: Contract conversion incentives. If you’re on ECC and converting to S/4HANA on-prem, SAP will credit some of your old investment. Those credits are higher now than they’ll be in 2027.

So an argument for perpetual now is locking in a good conversion rate and preserving your investment value. If you wait, you may end up paying more to start fresh later.

Hybrid Approach – When Two is Better Than One:

Hybrid can mean a couple of things: one, a phased approach where part of your estate goes RISE and part remains on-prem (for example, corporate HQ on RISE, but a subsidiary on a local instance, or dev/test environments on cheaper infrastructure but production in RISE). Two, it can mean time-phased – e.g., you sign a RISE deal for the future but continue to run ECC on-premises for a transitional period (SAP’s dual-use rights can enable this).

The comparative TCO of a hybrid is tricky – you may not optimize pure costs because you’re maintaining two landscapes, but the benefit is risk mitigation and flexibility. Strategic triggers for hybrid: use it if you’re not confident enough to go all-cloud at once, or if you have unique needs that RISE can’t fulfill in one area, but you still want the cloud benefits for other parts.

For instance, you might have a manufacturing plant with spotty internet where you maintain a local ERP instance, but all other applications are hosted in the cloud. Or perhaps you want to test the waters: move a non-critical business unit to RISE as a pilot, while keeping core on-prem until results are proven.

A hybrid approach could also be contractual, involving the negotiation of a RISE deal that only covers specific user types or regions, while retaining some perpetual licenses for others.

This can sometimes get you the best of both: you leverage SAP’s cloud incentives on part of the business, while holding on to perpetual rights as a hedge. One big caution: hybrid means complexity in contracts and integration – ensure you negotiate how licenses are exchanged.

For example, if a user in the on-prem part moves to the RISE-covered part, can you transfer that license value? Or will you pay twice? A well-structured hybrid agreement will clarify these boundaries (e.g., an option to convert remaining perpetual licenses to RISE at a fixed rate later, providing a roadmap to full cloud adoption if desired).

Comparative TCO Models:

Any large enterprise should model 5-year and 10-year TCO for at least two scenarios (e.g. ,all-in RISE vs all-in Perpetual, and maybe a hybrid interim).

Include all costs: for perpetual licenses, include hardware, internal support staff, and annual maintenance; for RISE, include subscription fees and any additional services not included that you’d still need (such as integration or add-ons).

Also factor in the cost of potential future changes, such as RISE renewal increases versus perpetual hardware refresh or software upgrade projects. This modeling will highlight the crossover point.

Often, subscriptions may look similar or slightly higher in nominal cost over 5 years, but significantly higher over 10 years. If your corporate mindset is more short-term or you plan a next-gen overhaul within a decade, subscription can make sense.

If you view ERP as a 15-year backbone investment, you might lean toward owning. Knowing these numbers also strengthens your hand with SAP – you can point out “over 7 years, RISE will cost us X more, so either improve the offer or we’ll go another route.”

Strategic Triggers Summary:

• Go RISE if: You need fast transformation, reduced IT burden, one-stop SLA, and are okay with standardized environments, also, if SAP is giving a compelling deal now (and you accept the recurring cost model). Trigger: a board-level cloud-first mandate or a desire to shift to OpEx and outsource ERP operations.
• Go Perpetual (self-managed) if: You require maximum control, have unique custom needs or regulatory constraints, and want to capitalize on existing assets and expertise. Trigger: strong internal IT capability and a strategy to optimize long-term cost; also, if you aim to sweat the asset and perhaps eventually consider third-party support to extend life.
• Go Hybrid if: You want to mitigate risk or split the difference – e.g., keep mission-critical pieces in your hands for now but start gaining cloud experience. Trigger: a scenario where one size truly doesn’t fit all (e.g., certain regions or business lines fundamentally differ in requirements), or as a stepping stone because your organization isn’t ready culturally or operationally for full cloud.

No matter which route, negotiate flexibility: if you choose RISE, negotiate an option to carve-out or exit if needed, or a framework to bring remaining pieces in later at locked pricing. If you choose on-premises, consider securing a conversion clause that allows you to receive credit if you switch to RISE within 2 years.

decision matrix isn’t static – you can change your mind down the road, and a savvy CIO plans for that even in the initial contract.

CIO Takeaways:

• Evaluate TCO and strategy alignment. Compare the 5-10 year costs of RISE, owning, and hybrid models, and choose the one that fits your financial profile and transformation pace – not just what SAP is hyping.
• Use SAP’s push to your benefit. If leaning cloud (RISE), leverage SAP’s hunger for subscription deals in 2025 to secure extras: migration services, bigger conversion credits, and capped renewals. If sticking with on-premises, lock in conversion credits now and ensure dual-use rights for a smooth future transition.
• One size need not fit all. Don’t be afraid to adopt a hybrid stance if it reduces risk – just negotiate clear terms on how licenses transition between models. The best decision might be a phased one that keeps your options open as real-world results come in.

The Pre-Negotiation Intelligence Package

Walking into an SAP licensing negotiation without a data-backed game plan is like going to court without evidence.

Before engaging SAP in serious talks, you need to assemble a pre-negotiation intelligence package – a dossier of information and insights that will inform your strategy and give you an edge at the table.

This isn’t just nice-to-have; it’s essential for a high-stakes S/4HANA deal in 2025.

Here’s what that package should include:

1. Hard Data on Your Current State: Gather a complete inventory of your existing SAP licenses and usage. How many users of each type are active? What modules or engines (like SAP’s industry or technical add-ons) do you own, and are they in use? What’s your spend on maintenance? Importantly, identify shelfware – any licenses you’re paying for that are not being used (e.g., that 500-user CRM component that never got deployed).

This data serves two purposes: it highlights what value you can trade in or cut (shelfware can be a bargaining chip – “we will drop these unused licenses if you credit us their value toward new S/4HANA licenses”), and it ensures you know your starting point so SAP can’t confuse you about it.

Also, document your current usage metrics like peak named users logged in, volume of documents created (for digital access), and any performance pain points. This factual picture prevents SAP from overselling you. For example, if they claim “you’ll need 100 Professional users,” but your data shows only 50 heavy users today, you have grounds to push back.

2. Future Needs Forecast:

Arm yourself with a well-supported projection of what you’ll need in the next 3-5 years. This ties back to the earlier section on business objectives. If you plan to expand into two new countries and add 1,000 users by 2027, please note this.

If you foresee a 30% increase in transaction volumes due to e-commerce growth, include that. Conversely, if you plan to divest a division or move some processes off SAP, account for that reduction.

The goal is to present SAP with a clear but controlled demand profile – one that justifies a favorable deal without revealing your hand completely. For instance, you might internally expect to grow 50%, but you may not want to appear desperate. Instead, you demonstrate sufficient growth to qualify for volume discounts, while also highlighting your ability to limit usage through efficiencies.

Include also any planned new SAP products (like if you intend to implement Ariba or SuccessFactors) – showing these in a unified plan can encourage SAP to give a bundle proposal (they see the bigger picture of your potential spend).

However, be cautious: reveal only what you want them to know. You might not mention alternatives you’re considering (like maybe evaluating Salesforce for CRM) as that can complicate things, unless you want to use it as explicit leverage.

3. Competitive Benchmarks and Market Intelligence:

This is where you arm yourself with knowledge of how other companies have fared in similar negotiations – without breaking any confidentiality. Tap into user groups (such as ASUG and DSAG), industry peers, or consult advisors who specialize in SAP deals. You want to know ballpark discount levels that enterprises of your size/industry have achieved for S/4HANA or RISE.

For example, if the list price for a certain S/4 package is $100, you might find that many get it for $50 or less. That tells you SAP has wiggle room. Also, find out what kind of contract pitfalls others regretted (like “we didn’t get a cap on cloud renewal and year 4 costs jumped 20%”).

Benchmarking can be tricky due to NDAs, but often information is available in aggregate or anonymously – e.g., an advisory firm might say “we’ve seen 60-70% off list for on-prem S/4 in recent deals.” Such intel prevents you from accepting a mediocre offer, making you think it’s good.

Additionally, research SAP’s current sales initiatives: are they this quarter aggressively pushing RISE with SAP contract terms with extra discounts? Are they under pressure to sell cloud credits or some new product? Knowing SAP’s internal drivers (which analysts and news can hint at) can help time your negotiation for when you have the upper hand (often end of quarter or fiscal year, when they need your deal booked).

4. Alternatives and BATNA:

In negotiation theory, your BATNA (Best Alternative To a Negotiated Agreement) is your Plan B if you don’t reach a deal. You should quantify and understand yours.

Alternatives could be: staying on ECC longer (what’s the cost of extended maintenance or doing nothing?), switching to a non-SAP solution (unlikely for core ERP, but maybe plausible for edge systems), or using third-party support for a while instead of SAP’s maintenance (some companies consider this post-2027 to buy time).

Another alternative is to implement S/4HANA on-premises yourself, rather than using RISE, or vice versa. By fleshing out these alternatives, you can credibly say to SAP, “If this deal isn’t good enough, we have other paths.”

For example, if SAP’s offer to move now is too costly, perhaps you could show that paying the extra 2% maintenance through 2028 and re-evaluating later is cheaper – not that you want to do that, but you could. Or if negotiating RISE, make it clear you’re also pricing out a self-managed approach on Azure with a systems integrator.

If SAP believes you are ready to pursue a viable alternative, your negotiating power increases dramatically. Ensure you gather data to support it: e.g., obtain a quote from a cloud hosting partner or an estimate from a third-party maintenance provider. You might not go that route, but having real numbers lets you confidently posture that you will.

5. Points of Leverage and Concessions List:

Lastly, prepare a list of what you will ask for and what you are willing to concede. This is the “shopping list” of negotiation. It includes your must-haves (e.g., a price within a certain range, specific contract clauses regarding audit and flexibility) and nice-to-haves (such as free training or a longer payment term).

Also, list what you can trade away: perhaps you’re willing to sign a longer term to get a bigger discount, or you’ll be a public reference for SAP in exchange for concessions. Having this mapped out in advance prevents decision paralysis on the spot.

You’ll know, for instance, if SAP says “this price is only valid if you sign by December 31st,” whether that deadline pressure is acceptable or if you’re willing to walk. Pre-think your walk-away points too: the worst-case deal you’d still accept, and beyond that, you’d rather exercise the BATNA.

In complex deals, also be aware of any internal corporate guidelines (legal or procurement may have rules on indemnities or liability caps, etc.). Know where you have flexibility to bend to SAP and where you don’t.

Benchmarking without Breaking NDAs:

A quick note on ethical intelligence-gathering: while you can’t ask peers to violate their NDAs by sharing exact pricing, you can leverage public info and anonymized data.

Analyst reports, community forums, and consultants’ whitepapers often contain ranges and trends (like “RISE contracts have seen high-teens percentage annual increases after initial term” – good to know!). Participate in user group surveys if available; they often publish aggregated stats. Suppose you have a relationship of trust with an industry colleague.

In that case, you can share general experiences (“We insisted on including indirect use in our deal, did you manage that?”) rather than dollar figures. The idea is to be as informed as SAP’s sales team is.

Remember, SAP salespeople negotiate deals every day and have access to a wealth of internal data on what customers are willing to pay. As a customer, you do this only occasionally. By assembling intelligence, you level that playing field.

CIO Takeaways:

• Know your facts cold. Bring a complete inventory of current licenses and actual usage, plus a forecast of future needs. Data-driven arguments about what you need (and don’t need) will prevent overselling and support your requests for discounts or terms.
• Benchmark and leverage the market. Gather information quietly on what similar companies are paying and negotiating. You’ll approach SAP with realistic targets (for price and terms) and recognize a bad deal. Show SAP you have alternatives (extend ECC, third-party hosting/support) to strengthen your hand.
• Define your negotiation guardrails. Before talks begin, know your must-haves (and deal-breakers) and have a plan for concessions. This preparation ensures you won’t agree to something under pressure that you’ll regret later, and you won’t miss opportunities to ask for value-adds.

Defensive Contract Architecture

Signing the deal is not the end – it’s the beginning of a long-term relationship with SAP, governed by defined rules.

The contract you sign will determine how much leverage (or pain) you have in the years ahead. That’s why designing a defensive contract architecture is critical.

Think of it as building fortifications into the contract that protect your company’s interests no matter how circumstances or SAP’s policies change. Here are key elements to focus on:

Pricing Locks and Caps:

One of the biggest risks in any subscription or recurring agreement is the surprise price hike. You can’t assume goodwill will protect you – get it in writing.

For RISE or cloud deals, negotiate a cap on renewal increases. For example, stipulate that at the first renewal (say year 4 or 5) the subscription fee can increase by at most X% (perhaps tied to inflation or a single-digit percentage).

If SAP balks at an eternal cap, even locking it for the first renewal cycle is crucial, as that’s when the biggest jumps often occur.

Also, if you’re not consuming all you anticipated, ensure there’s no minimum uplift just because. In a perpetual license scenario, your maintenance is a percentage of the license value – lock that percentage.

If you purchased licenses at a significant discount, ensure that maintenance is based on the discounted price, not the list price (SAP sometimes attempts to peg maintenance to the original list price, which can result in higher costs; insist that it is based on what you paid). Another price lock: multi-year cloud credits.

If you plan to ramp up usage later, negotiate now the price for additional users or documents so you’re not at SAP’s mercy when you need them.

The contract should stipulate that any additional licenses of the same type purchased within X years are subject to the same discount or unit price as the initial purchase.

Downscale and Flex Clauses:

We touched on this earlier – try to embed any rights that allow for reducing or adjusting usage. For example, include a clause like “Customer may reduce the number of subscribed FUEs by up to 15% at the end of year 3 with a corresponding reduction in fees, without penalty.” SAP rarely offers this unless asked.

You might not get a broad right, but even a one-time adjustment window could save you if your business contracts or overestimates usage. If you have seasonal or project-based variability, consider introducing the concept of flex credits (this is novel, but worth trying): maintain a base subscription but allow for a 10% over- or under-usage in a year, with a billing true-up/down at year-end.

It essentially pre-agrees how to handle fluctuations, so it’s not a contractual breach or a whole renegotiation each time. Flexibility in contract also includes the aforementioned swap rights – write them in clearly: “

Customer may exchange unused licenses for other licenses of equal value from SAP’s catalog once per year,” or whatever is agreed. Don’t rely on verbal promises; if an SAP salesperson says, “We’ll work with you if you need to swap later,” kindly ask them to include that in the contract as a clause or attachment.

Indirect Use Immunity and Scope Definitions:

Ensure the contract language regarding what you’re licensing is unambiguous and favors you. For instance, if you purchased X number of digital access documents, specify which document types and scenarios these cover.

Name the third-party systems that will be generating those documents and assert that SAP will not require additional licenses for those systems/users beyond the digital access.

Essentially, you want a clause that says “SAP agrees that the use of SAP software by up to Y external users or by third-party applications A, B, C to create or access data is covered under the licenses granted herein.” Even if not all-inclusive, any specific carve-outs you list will avoid future audit fights.

Another defensive angle: if you negotiated any special conditions (e.g., extended use of a component until a certain date, or transitional use of ECC until S/4 goes live), document them thoroughly. Put in the contract: “Customer may continue to use SAP ECC functional modules XYZ until Dec 2028 under this agreement, despite the migration to S/4HANA, with no additional license cost.”

Without such clarity, you risk someone at SAP later claiming you’re out of bounds. Also be explicit on global use rights – if you are a multinational, ensure the contract doesn’t restrict usage to certain countries or affiliates unless that’s intended.

Ideally, make the licenses enterprise-wide so you can deploy them where needed across your corporate family.

Future-Tech and Growth Provisions:

A truly defensive contract tries to anticipate tomorrow’s issues. While you can’t predict everything, you can include guiding principles. For example, AI-driven consumption growth – perhaps add language that if new SAP functionality (like an AI feature) requires additional licenses or units, SAP will provide a certain baseline at no charge or a predetermined price.

If you suspect, say, SAP might start charging per AI transaction in the future, maybe include: “If SAP introduces new licensing metrics for AI or machine learning services integrated in S/4HANA during the contract term, Customer will be entitled to X amount of such usage under the existing fees, or will have the option to decline those features without penalty.” It’s hard to obtain, but setting an intent can at least provide a basis for discussion later.

For digital access, consider a growth buffer clause: “If document volume grows more than 10% annually due to organic business growth, parties will negotiate in good faith a pricing adjustment not to exceed the current unit price.” That way, if your business booms, SAP can’t just apply the list price to the overage; you have a principle to cap the cost growth in proportion.

Contingency and Exit Terms:

Though you hope not to use them, include contingencies: what if a merger happens and you’re acquired by a company with its own SAP licenses?

Can you consolidate agreements or get out of one without massive fees? What if you decide SAP’s cloud isn’t working after the term – do you have rights to shift back on-prem with some credit (this one’s tough, but some have negotiated conversion of subscription to perpetual licenses at end-of-term at a formula)?

At a minimum, ensure there’s a clear exit assistance clause: if you leave SAP or RISE, they must help with data migration off their cloud and not charge a ransom for it. Things like that often aren’t in the boilerplate, but you can add them.

Also, consider adding a governance clause – e.g,. You will have an executive quarterly business review with SAP to discuss license and service usage. It sounds innocuous, but making SAP engage regularly can surface issues early and keep them somewhat accountable to help you avoid problems (since it’s in the contract to review these, they can’t say “we didn’t know” if something goes off track).

CIO Takeaways:

• Bake in cost protections. Ensure your contract caps future price increases and fixes unit prices for additional needs. Never rely on verbal assurances – get multi-year pricing locks and written terms for any “welcome” discounts or credits.
• Neutralize future surprises. Use contract language to cover indirect use scenarios, list integrated systems, and grant yourself the right to use legacy systems during the transition. Include clauses that address emerging tech or major business changes (mergers, divestitures) so you aren’t stuck renegotiating from scratch.
• Own the exit and flexibility. Negotiate terms for reducing scope or leaving the service before you sign. Downscale options, swap rights, and exit assistance clauses provide you with leverage throughout the relationship and prevent SAP from holding all the cards if circumstances change.

Related Articles

• Top 20 Things Every ITAM Professional Needs to Know About SAP S/4HANA License Management and Negotiations.
• SAP S/4HANA Contract Conversion and Migration: A Strategic Pillar for Transitioning Existing SAP Licenses.
• SAP S/4HANA Licensing – The Ultimate Licensing Guide

FAQ

Q1: How is SAP S/4HANA licensing different from SAP ECC licensing?
A: There are several differences. S/4HANA introduces new user categories and optional document-based licensing for indirect access (Digital Access). ECC was licensed mainly by named users and modules; S/4HANA still uses named users for direct access but offers more flexible metrics (like FUEs for cloud and outcome-based metrics in some cases). Additionally, S/4HANA requires HANA database licensing and is often sold via subscription for the cloud, whereas ECC was typically on-premises, with perpetual licensing only. In short, S/4HANA licensing can be more complex due to new models, but it can also be more aligned with business usage (e.g., counting API calls via documents instead of users). Companies migrating from ECC should re-evaluate their license mix – you can’t assume your old licenses cover S/4HANA without a formal conversion.

Q2: Should we choose S/4HANA on-premise or S/4HANA Cloud (RISE) from a licensing perspective?
A: It depends on your business priorities. On-premise gives you perpetual rights and more control (you manage infrastructure and upgrades), potentially lower TCO over a very long term, and flexibility to pause maintenance, but it requires a big upfront spend and internal resources. Cloud/RISE converts ERP into a subscription service, making it easier to start and include infrastructure and support in the price. Still, you’ll pay continually and have less control over the environment and upgrade timing. If your organization values capital investment and independence, on-prem might be better. If you prefer an open model with SAP handling the technical heavy lifting (and you plan to stay current on technology), cloud licensing is an attractive option. From a pure licensing cost perspective, both can be similar over a 5-7-year horizon; the differences emerge beyond that and in intangible costs (IT effort, risk). Many enterprises do a cost comparison table (like the one in this guide) and also consider qualitative factors. It’s also possible to start in the cloud and later move on-prem or vice versa, but that would involve a contract transition. Decide as part of your S/4HANA strategy, as it impacts not just cost but also how you structure your IT operations.

Q3: What is a Full User Equivalent (FUE), and how does it relate to S/4HANA named users?
A: Full User Equivalent (FUE) is a unit of measure SAP uses for cloud licensing. Think of it as a weighted count of users. In S/4HANA Cloud, instead of purchasing specific numbers of each user type, you often purchase a total FUE count. Each type of user (e.g,. Professional, Functional, Productivity) has a weight (a Professional might be 1.0 FUE, a Functional 0.5, etc.). SAP will convert your user figures into FUEs for pricing. For example, 100 Professional users at 1.0 each = 100 FUEs, and 100 Functional Users at 0.5 = 50 FUEs, totaling 150 FUEs. This becomes the basis for your subscription fee. The FUE concept allows you to have flexibility in the mix of users as long as you stay within the total FUE license. It’s essentially SAP’s way to simplify complex user mixes into a single metric (and also to allow some headroom – e.g., you could swap some Functional users to Professional as needs change, as long as the FUE total doesn’t exceed the contract). For customers, you mostly need to understand how your named user requirement translates to FUEs so you can negotiate the right amount. FUEs don’t apply to on-prem licenses – they are purely a cloud subscription metric.

Q4: How does SAP’s Digital Access (indirect document) licensing work, and do we have to use it?
A: Digital Access is SAP’s model for licensing indirect use, which counts certain documents (such as orders and invoices) created in S/4HANA by external systems. If you adopt it, you purchase the rights to several documents per year. For example, you might license 100,000 digital documents annually when a third-party app creates a sales order in SAP, which counts as one (or more, if multiple line items) against your allowance. You don’t have to use Digital Access if you had a prior licensing model – you could continue to cover indirect access via named users or older package licenses. However, new S/4HANA customers are generally expected to use Digital Access for any new interfaces. SAP’s official stance is that Digital Access is recommended but not strictly mandatory – they have given customers the option to continue using the old model. In practice, to avoid confusion, many have opted for the document model because SAP provided incentives and clarity around it. If you opt not to, you must ensure any indirect usage is covered by other licenses (which can be tricky and was the source of past audit disputes). So, you don’t have to buy digital documents, but you do have to license indirect use one way or another. We recommend evaluating both approaches: count your external documents, obtain a quote for Digital Access, and compare that to the cost of adding named user licenses for those external users or a blanket engine license, if available. Choose the lower-cost or more manageable option. Keep in mind that SAP’s indirect usage policy now explicitly allows read-only access without a license, so if your integrations are only reading data from S/4 (not creating records), you may not need Digital Access at all.

Q5: Can we reuse our existing SAP ECC licenses when migrating to S/4HANA, or do we need to buy all new licenses?
A: You cannot directly reuse ECC licenses for S/4HANA. S/4HANA is treated as a new product line with its licenses. That said, SAP offers conversion credits or programs so your past investment isn’t lost. Essentially, you will need to acquire S/4HANA licenses (or subscriptions), but the cost you pay can be offset by what you already own if negotiated properly. For on-premise, this usually means trading in some ECC licenses for S/4 licenses (for example, you might surrender 100 ECC Professional licenses and get 100 S/4HANA Professional licenses at a reduced fee). For the cloud, SAP might convert the annual maintenance you were paying for ECC into a discount off the cloud subscription. The specifics depend on SAP’s current promotions and your negotiation. It’s essential to engage with SAP early and explore their contract conversion program. This typically results in a new contract for S/4HANA that replaces your ECC contract with language about terminating the old licenses once you’re live on S/4. If you have shelfware (unused ECC licenses), you may not want to convert all of them – consider negotiating to drop the excess and only carry over what you need. On the other hand, if you require more licenses in S/4 than you had in ECC (for instance, if your user count is expected to grow or you want to implement new modules), you’ll need to purchase those licenses net-new. In summary, you do need new licenses for S/4HANA, but the value of your existing licenses can mitigate the cost of those if you approach it strategically. Don’t just buy S/4 outright without discussing conversion options – you’d lose the opportunity to get credit for what you’ve already paid in ECC.

Q6: What strategies can we use to reduce SAP S/4HANA licensing costs?
A: To reduce cost, focus on optimizing what you buy and what you use. A few strategies:

• License only what you need: Analyze your users and processes so you purchase the correct number of each license type. Avoid the temptation to over-provision “just in case.” It’s better to start a bit lean (within safe limits) and add licenses later as needed than to overbuy and have shelfware with ongoing maintenance.
• Mix user types: Use lower-cost user licenses for users who don’t need full functionality. For example, give casual users a Productivity (limited) license instead of a Professional license. That can drastically cut the per-user cost.
• Negotiate volume breaks: If you’re a large customer, consider negotiating beyond the standard discount – e.g., if you commit to a certain spend or future growth, ask for an extra discount tier. Also, leverage any enterprise agreements if available (SAP sometimes offers an enterprise license agreement for a flat fee covering a range of products – if you use many SAP products, that could be cost-effective).
• Clean up unused licenses: As mentioned, regularly remove or reallocate unused licenses. If you identify 50 users who left the company, you might be able to drop 50 licenses from your maintenance count (saving support fees) or reuse them for new hires rather than buying more.
• Monitor engines and indirect use: Ensure you’re not paying for an engine metric that’s far above actual usage. If you pay for 1 million orders but only fulfill 500k, consider adjusting the contract down on renewal. Ensure indirect access is properly licensed at the most cost-effective rate (compare the document-based approach with the named user approach).
• Timing of purchase: Align purchases with your actual needs. If you’re rolling out in phases, you don’t necessarily need to license all 500 users on day one if only 200 will use S/4 in the first year. You could negotiate a phased license acquisition (some deals have a ramp-up structure). This saves upfront costs and aligns spending with the realization of value.
• Consider the economics of cloud vs. on-premises solutions: Depending on your scenario, one approach may be more cost-effective. If you have a strong infrastructure and an administrative team, as well as stable usage, on-premises solutions can be cheaper over time. If you’d otherwise spend a lot on hardware and admins for a small deployment, the cloud could be more cost-effective. Calculate the full picture for your case.
• Use contract flexibility: If you’re in the cloud, use the ability to scale at renewal to avoid overpaying for unused capacity. If on-prem, use the ability to shelf unused licenses (drop maintenance) to reduce yearly costs.
• Finally, maintain a good relationship with SAP, but also don’t be afraid to push back in negotiations. SAP’s first quote is rarely the best they can do. Bring data to justify a lower price (“We only use X, so we think a fair price is Y.”) and consider getting quotes from third-party SAP resellers or partners if applicable for comparison.

Q7: What happens during an SAP license audit, and how should we prepare?
A: In an SAP audit, SAP will request usage data to compare against your licensed entitlements. For S/4HANA on-prem, they’ll have you run the SAP measurement programs (LAW, USMM), which output the number of users by type in each system and usage metrics for packages. They may also ask about indirect usage (possibly by running the Digital Access tool or simply requesting multiple interfaces). For the cloud, they may review the number of active users and any other contracted metrics. Once SAP gets the data, they will identify any shortfalls (under-licensed) or compliance issues. They’ll then typically require you to purchase additional licenses to cover any gaps, potentially with back-maintenance fees if the usage is underpaid and on-premises.

To prepare, do the work upfront:

• Always know your current license counts and usage (so the audit has no surprises for you).
• Clean up user assignments before the official measurement (ensuring each user has the correct license type and unused accounts are locked/deleted).
• Have documentation ready for any unusual situations – e.g., if two user IDs represent the same person (to avoid SAP counting them twice), you can explain this with the LAW consolidation.
• If you use virtualization or multiple systems, be ready to show how you avoid double-counting licenses (LAW can handle this if configured properly).
• For indirect usage, compile a list of all third-party systems and the license coverage you have (e.g., named users, etc.) or the number of documents they create if on Digital Access. Demonstrating to auditors that you’re actively tracking indirect consumption can sometimes forestall deeper scrutiny because it shows proactive compliance.
• Assign a single point of contact (or a team) to interface with SAP auditors, ensuring clear communication. It’s often beneficial to have someone from procurement or IT asset management involved alongside technical IT personnel to interpret contract nuances.
  During the audit, you can and should ask questions. If SAP says, “You’re short 20 Professional licenses,” examine the data – are those 20 active users, or could some be retired? The audit resolution can also be a matter of negotiation. Perhaps instead of buying 20 Professional at the list price, you propose converting some existing licenses or purchasing a different mix (maybe 10 Professional and 10 Functional if not all were heavy users). Auditors might not negotiate commercial terms (they typically hand them over to sales for that), but you can certainly discuss the findings. Good preparation ensures you’re not scrambling after the fact – you’ll already have an idea if you were under-licensed and can plan a budget or mitigation.

Q8: What negotiation tactics can we use when contracting for S/4HANA licenses?
A: Negotiating with SAP is like negotiating with any large vendor – come prepared, know your requirements, and understand the vendor’s incentives. Some tactics:

• Benchmark and set targets: Know roughly what other companies pay. SAP licenses often have huge discount percentages off the list (50%? 70%? more for very large deals). If you go in knowing typical discount ranges and the fact that many terms are negotiable, you won’t settle too easily. Set a target price or discount and push for it – SAP won’t initially offer its best price.
• Create competition or alternatives: Even if you’re set on S/4HANA, consider leveraging alternatives in conversation. For example, mention that you’re evaluating Oracle or Workday for certain functionality – if SAP senses competition, they may improve the offer. If you’re considering third-party support (for ECC or S/4), subtly implying that you might stick with ECC longer with third-party support could motivate SAP to offer a better conversion deal for S/4HANA. Use this tactfully; you don’t want to sour the relationship, but you do want SAP to feel they need to earn your business.
• Bundle and trade: SAP sells a vast portfolio. If you are also interested in things like Ariba, SuccessFactors, BTP, etc., consider negotiating them together. SAP may offer a larger discount if you’re purchasing a comprehensive solution stack (they have internal mechanisms, such as Deal Review committees, that provide special approval for discounts on larger multi-product deals). Also, use trade-ins – if you have a lot of unused licenses or prior purchases, ask to trade them for what you need now (SAP might not give full credit, but some credit is better than none).
• Timing and end-of-quarter pressure: Plan to negotiate at a time when SAP is hungry to close. As mentioned, the end of Q4 (December) for SAP or the end of their fiscal year (which coincides with the calendar year for SAP) can yield extra incentives. Be careful not to get rushed into a suboptimal deal just because it’s year-end – but it’s a good time to demand that extra 5-10% discount or freebie. If you can’t close by year-end, sometimes just waiting to the next quarter-end will yield a new promo.
• Clarify future costs: Negotiate caps on future cost increases to ensure transparency and predictability. For cloud, try to cap renewal increase (e.g., “renewal not to exceed +5% of current fee” or at least a first renewal cap). For maintenance, if you’re getting a discount on licenses, see if SAP will apply the same discount to the maintenance base (sometimes, they reduce the first-year maintenance or give credit). Additionally, if you anticipate adding more users within a year, consider negotiating the price for those now (e.g., add-on users at the same discount or fixed price).
• Get everything in writing: During negotiation, SAP reps might say, “Yes, you can do X.” – ensure it’s reflected in the contract/order form. Verbal assurances mean a little later. If, say, they promise you can swap some users for another type in the future, have that flexibility written in.
• Use escalation wisely: If your SAP account team isn’t budging and the issue is significant, escalate to their management or consider a direct conversation with SAP’s executive sponsors. SAP values strategic accounts, and often, senior management can approve special terms if they view the customer as a long-term pillar. But use that card once you’ve hammered out as much as possible at the lower levels.

Q9: What is included in the SAP S/4HANA “Digital Core” license versus separate licenses?
A: The S/4HANA Digital Core (often referred to as “SAP S/4HANA Enterprise Management”) comprises the core ERP modules that encompass standard enterprise processes. This typically includes Finance and Accounting (GL, AP/AR, Asset Management), Sales and Distribution, Procurement and Inventory Management, Basic Supply Chain and Manufacturing, Human Resources (basic HR personnel admin, not full SAP SuccessFactors), Project System, and integration capabilities, all on the HANA in-memory platform. It also includes the Fiori user experience and embedded analytics that come standard with S/4. In essence, the digital core license gives you a broad functionality similar to what SAP ECC’s central components provided but enhanced for HANA with real-time analytics and some new capabilities (like embedded predictive, etc.).

What is not included and usually requires a separate license are the extended or advanced modules. Examples:

• SAP SuccessFactors, Concur, Ariba, etc. – these are separate cloud products for HR, travel, and procurement networks (although integrated with S/4, they are licensed separately).
• Advanced Planning (IBP or PP/DS) – basic MRP is in the core, but advanced IBP, or production planning/detailed scheduling solutions, are separate.
• Extended Warehouse Management (EWM) – S/4HANA core includes basic warehouse management. Still, if you need advanced EWM capabilities (such as wave management and labor management), SAP offers an extended version that’s separately licensed.
• Transportation Management (TM) – similarly, basic shipping is at the core, but full TM is an add-on.
• Central Finance – if you want to use S/4HANA in a Central Finance deployment (aggregating multiple backend systems), there’s a license for that scenario.
• Industry solutions – e.g., Utilities billing, Retail articles, Oil & Gas, etc. Many industry-specific functions come as add-ons to the core.
• SAP BTP Extensions – any use of SAP’s Business Technology Platform services (like building extensions or using integration services) would be separate (unless included via RISE credits).

🎥 S/4HANA Licensing Strategy & Optimization | SAP Licensing Experts

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