SAP S/4HANA Licensing Costs Explained
- Perpetual License: Pay upfront and own the license.
- Subscription Model: Monthly or yearly fees for cloud services.
- User-Based Pricing: Costs depend on the number of users.
- Additional Features: Extra costs for advanced functionalities.
- Customization Costs: Charges for tailoring to specific needs.
- Maintenance Fees: Annual charges for updates and support.
SAP S/4HANA Licensing Costs Explained
Understanding SAP S/4HANA licensing costs can be complex.
If you’re considering SAP S/4HANA, either migrating from ECC or adopting it for the first time, it’s crucial to understand the costs involved.
This article aims to simplify the topic, breaking down SAP S/4HANA licensing into manageable sections, explaining pricing factors, and providing key examples.
1. What is SAP S/4HANA?
Before diving into costs, let’s clarify what SAP S/4HANA is.
- S/4HANA is the latest ERP suite from SAP, built on the in-memory HANA database.
- It helps businesses process real-time data, perform predictive analysis, and improve decision-making.
With S/4HANA, businesses get a faster, more agile ERP to manage supply chain, finance, and other key processes. Migrating to or implementing S/4HANA is a big step with costs and licensing implications.
2. Types of SAP S/4HANA Licenses
SAP S/4HANA licensing can be divided into two main categories: subscription-based and perpetual licensing.
Here’s what you need to know about each:
2.1 Subscription-Based Licensing
- Cloud Edition: If you opt for a cloud deployment, SAP offers subscription-based licensing. In this model, businesses pay a recurring fee, usually annually.
- Cost Structure: The cost typically depends on factors such as the number of users, the type of functionality needed, and the level of resources (like processing power or storage).
Pros:
- Lower upfront costs.
- SAP manages updates, maintenance, and infrastructure.
Cons:
- Long-term costs can add up.
- Limited customization compared to on-premise solutions.
2.2 Perpetual Licensing
- On-Premise Edition: Perpetual licensing is an option for businesses that need more control. This is more traditional, where you pay upfront for a license and manage your infrastructure.
- Cost Structure: You pay a one-time fee for the license plus ongoing maintenance costs, usually around 20-22% of the original license price per year.
Pros:
- Full control over the system.
- Greater customization options.
Cons:
- High initial cost.
- Additional costs for infrastructure and internal IT staff to manage the system.
3. Factors Influencing SAP S/4HANA Licensing Costs
Understanding what drives your licensing costs is crucial for making an informed decision.
Let’s break down the major factors that impact the pricing.
3.1 Number of Users
The number of users is one of the primary cost drivers. SAP distinguishes between different types of users:
- Professional Users: These are people who have full access to and use the system extensively (e.g., accountants or supply chain managers).
- Limited Users: They have restricted access and are used by roles that only perform specific tasks.
For example, if you have 50 professional and 100 limited users, expect significantly different costs compared to having only ten users of each type.
3.2 Deployment Type
There are three main deployment options, each affecting licensing:
- Public Cloud: Cheaper upfront but limited customization.
- Private Cloud: More customizable but more costly.
- On-Premise: Requires infrastructure and management, which means higher costs but complete control.
3.3 Scope and Modules Needed
SAP S/4HANA is modular, meaning you only pay for what you need:
- Core Finance: For financial management and reporting.
- Supply Chain: To handle logistics and supply operations.
- Human Resources: For managing workforce data.
The more modules you need, the higher the costs. For example, a small company might just need Core Finance, while a larger manufacturing company could need finance, supply chain, production, etc.
4. How Pricing Works: SAP’s User-Based Model
In most SAP licensing scenarios, pricing follows a user-based model:
- Named User Licensing: Each user is named in the system. This model is often used for larger enterprises where every employee accessing the system needs a license.
- Types of User Licenses:
- Professional User: The most comprehensive access, priced the highest.
- Functional/Operational User: Lower cost, but with limited permissions.
- Employee User: Users who only need self-service, like entering time data or requesting vacation days.
Example:
A company needing licenses for 200 employees, 20 of whom are professional users and 180 of whom are operational users, will pay substantially more for the professional users.
5. Indirect Access and Licensing Concerns
Indirect access is another critical aspect of SAP S/4HANA licensing.
- Indirect Access: This occurs when third-party systems or applications access SAP data. Instead of human users, it involves other software systems (like Salesforce pulling customer data from SAP).
- SAP has become stricter in charging for indirect access, which can lead to unexpected costs.
Tip: It’s essential to audit all your integrations to determine whether indirect access is occurring and how to license it appropriately.
6. Cloud vs. On-Premise: Cost Comparison
Here’s a breakdown of the cost implications for each option:
6.1 Cloud Licensing Costs
- Subscription Model: Annual or monthly fee.
- Costs Involved:
- User licenses.
- Infrastructure as a Service (IaaS) fees for storage and processing.
- Support and Upgrades: These are managed by SAP and are often included in the subscription.
6.2 On-Premise Licensing Costs
- Perpetual License Fee: One-time purchase cost.
- Costs Involved:
- User licenses.
- Maintenance Fees: Annual fee (typically around 20-22% of the original license cost).
- Infrastructure Costs: Servers, networking, cooling, etc.
- IT Staffing Costs: Need for internal IT professionals to manage the system.
7. SAP S/4HANA Licensing Strategies
If you want to manage your SAP S/4HANA licensing costs effectively, consider these strategies:
7.1 Rightsizing Licenses
- Audit Your Users: Conduct a detailed audit of how many users actively use the system and what level of access they need.
- Reduce Unused Licenses: Many companies overestimate their needs, leading to unnecessary costs.
7.2 Negotiating with SAP
- Bundle Deals: Negotiating for package deals that include additional services or products can lead to better rates.
- Timing Matters: The end of a financial quarter or fiscal year can be a good time to negotiate for discounts.
7.3 Indirect Access Monitoring
- Review your third-party integrations regularly to avoid unexpected indirect access charges. Tools like the SAP Digital Access Adoption Program (DAAP) can help assess and monitor such usage.
8. Examples of SAP S/4HANA Cost Structures
To provide a practical understanding, two examples illustrate different cost structures.
8.1 Example 1: Small Retail Business in the Cloud
- Number of Users: 10 (5 Professional, 5 Limited).
- Modules Needed: Core Finance, Sales Management.
- Deployment: Public Cloud.
- Cost Estimate:
- Subscription Fee: $10,000/year.
- User Licenses: $2,500/year for Professional, $1,000/year for Limited.
- Total: Around $20,000/year.
8.2 Example 2: Large Manufacturing Company On-Premise
- Number of Users: 500 (100 Professional, 400 Limited).
- Modules Needed: Finance, Supply Chain, Production.
- Deployment: On-Premise.
- Cost Estimate:
- License Purchase: $1,000,000 upfront.
- Annual Maintenance: $200,000 (20% of license).
- Infrastructure & IT: $150,000/year.
- Total: $1,350,000 upfront, plus $350,000/year.
9. Key Tips for Managing SAP S/4HANA Costs
- Conduct Regular Audits: Regular license audits will help avoid the cost of paying for users or features you don’t need.
- Leverage SAP’s Tools: Use tools like SAP License Administration Workbench (LAW) to track and manage license usage.
- Negotiate Maintenance: Don’t forget to negotiate maintenance costs, especially if you have a long-term relationship with SAP.
- Consider SAP RISE: SAP RISE provides a holistic solution by bundling infrastructure, services, and support into a single subscription.
FAQ: SAP S/4HANA Licensing Costs Explained
What are the key licensing models for SAP S/4HANA?
SAP offers perpetual licenses, upfront payments, and subscription models for cloud services, billed monthly or yearly.
How is user-based pricing calculated?
Costs depend on the number of users and their roles, such as professional, limited, or self-service users.
Are there additional costs for advanced features?
Yes, features like analytics or industry-specific tools may involve extra charges.
What are the typical maintenance fees?
Maintenance fees are annual payments, usually 15–22% of the license cost, covering support and updates.
Does customization affect licensing costs?
Tailoring the software to specific business needs may add to the overall cost.
What is the difference between cloud and on-premise pricing?
Cloud pricing involves ongoing subscriptions, while on-premise requires a higher upfront investment but lower long-term fees.
Are discounts available for enterprise-level deployments?
Large-scale deployments may receive volume-based discounts, but negotiations are key.
How does SAP audit licensing usage?
SAP conducts regular audits to ensure compliance and identify any overuse of licenses.
What happens if I exceed my license terms?
Overuse may result in additional charges or the need to buy more licenses.
Can I switch from on-premise to cloud licensing?
Yes, but it may involve migration costs and a new pricing agreement.
What are Indirect Access fees?
These are charges for third-party applications accessing SAP data indirectly.
Do I pay for inactive users?
No, you only pay for active user accounts, but maintaining accurate records is essential.
What costs are involved in upgrading to SAP S/4HANA?
Upgrades may include licensing fees, implementation, and migration costs.
Are trial versions available to test the licensing?
SAP often provides trial versions for evaluation, but they may not cover all features.
Can I negotiate licensing terms with SAP?
Yes, businesses often negotiate pricing, terms, and additional benefits directly with SAP or through resellers.
