SAP S/4HANA Licensing Overview: Models, Metrics, and Migration Strategies

SAP S/4HANA Licensing Overview: Models, Metrics, and Migration Strategies

Introduction – Why S/4HANA Licensing Matters Now

SAP S/4HANA is SAP’s next-generation ERP and the planned replacement for SAP ECC. With ECC’s mainstream support ending in 2027 (and only expensive extended support available until 2030, or in special cases, 2033), organizations are under pressure to plan their move.

This migration isn’t just a technical upgrade – it’s also a licensing and commercial transition. S/4HANA brings new license models (more cloud subscriptions, fewer perpetual deals) and new ways to count users.

CIOs, CFOs, and IT procurement teams need a clear understanding of these changes now so they can budget wisely and negotiate favorable terms before ECC’s end-of-life deadlines hit. Read our ultimate guide to S/4 Hana Licensing.

Definition and Evolution of S/4HANA Licensing

In the ECC era, customers usually purchased perpetual licenses (a one-time fee plus annual maintenance) and counted users individually. S/4HANA’s licensing is more cloud-friendly and subscription-based.

SAP now promotes RISE with SAP – a bundle of S/4HANA software, cloud infrastructure, and support for a regular subscription fee (OpEx instead of CapEx).

Perpetual on-premises licensing for S/4HANA is still available, but SAP’s clear preference is to move customers to the cloud model.

Additionally, SAP introduced the Digital Access model for indirect usage in the S/4HANA era. Instead of requiring extra named-user licenses for third-party system access, it now offers an option to license indirect use based on documents (e.g., the number of orders or invoices created by external systems).

Another notable change is the licensing of users. ECC required a license for each named user (with many categories of users).

In S/4HANA (especially the cloud edition), SAP introduced the Full User Equivalent (FUE) metric: you buy a pool of FUEs, and different user roles consume different portions of one FUE.

For example, one Advanced user might equal 1.0 FUE, and one Core user might equal 0.2 FUE (so five Core users = 1 FUE). This approach focuses on total usage rather than assigning fixed licenses to individuals, allowing for more flexibility as your user mix changes.

Overall, S/4HANA licensing simplifies certain aspects (fewer user types and some previously add-on functionality is now included in the core) while introducing new metrics and cloud models.

Moving from ECC to S/4HANA means rethinking how you purchase and measure your ERP software consumption.

License Models: CapEx vs OpEx

When adopting S/4HANA, you can either invest upfront and run it yourself or subscribe and let SAP handle it.

Here’s a breakdown of the models:

• Perpetual License (On-Premises): You pay upfront for the software and then pay annual support fees. You deploy S/4HANA on your own infrastructure (or hosting of your choice) and retain full control. This model suits organizations that have a capital budget and strong IT capabilities, and who want to own the software on an indefinite basis. Downsides: high initial cost and full responsibility for maintaining and upgrading the system.
• Subscription License (Cloud/RISE): You pay a recurring subscription fee, which includes the S/4HANA software, the hosting (in SAP’s cloud or via a hyperscaler), and support. It’s essentially ERP as a service. This is attractive for cloud-first organizations or those seeking to avoid large capital outlays. Benefits include a lower upfront cost and offloading infrastructure and upgrade duties to SAP. The trade-off is less control (SAP manages the environment and updates on its schedule) and the need to keep paying to maintain access. Note: SAP offers both a public cloud (multi-tenant S/4HANA) and a private cloud (RISE with SAP S/4HANA single-tenant). The private option offers more flexibility for customizations but typically incurs higher costs than the standard public cloud.
• Hybrid Approach: Many enterprises use a mix – for example, running core S/4HANA in a private cloud subscription (to allow some customizations) while keeping certain systems on-premise. A hybrid model can be a stepping stone: it lets you enjoy some cloud benefits while retaining on-prem elements for compliance or custom needs. The main challenge here is complexity: you’ll manage both a perpetual license contract and a subscription contract, and you must ensure compliance and cost-efficiency across both.

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

User Licensing Metrics

Under ECC, you had to buy user licenses by type for each individual (e.g. Professional User, Limited User, Developer).

In S/4HANA, the on-premise edition still uses named user licenses, but the cloud edition uses Full User Equivalents (FUE) to measure users.

With FUE licensing, you purchase a pool of FUEs, and each user is classified into a role that consumes a certain fraction of an FUE. For example, an Advanced user might count as 1.0 FUE, a Core user as 0.2 FUE, and a Self-Service user as around 0.03 FUE. This means five Core users equate to one Advanced user in terms of license consumption, and about thirty self-service users equate to one.

You don’t have to pre-allocate specific license types to specific individuals – as long as your total usage stays within your FUE allotment, you’re covered. (SAP defines the FUE conversion ratios in your contract, so make sure you understand how many of each user type equals one FUE in your specific agreement.)

Benefits:

The FUE model simplifies license management and can reduce costs if you have lots of light users. Instead of purchasing dozens of separate low-level user licenses, you might cover all of them with just a few FUEs. It gives flexibility to adjust user levels – you’re paying for total capacity, not a rigid number of each user type.

Risks:

FUE licensing requires good forecasting. If you underestimate (say you have more heavy users than expected), you’ll need to buy additional FUEs unexpectedly. If you overestimate and overcommit to too many FUEs, you pay for unused capacity. Also, if most of your users are “Advanced” (high-level), FUE pooling doesn’t save much because each counts fully. In short, you must carefully analyze your user base and understand SAP’s user definitions to purchase the right amount.

(On-premises S/4HANA still uses named-user licenses with a few simplified categories, so in that scenario, you continue assigning the appropriate license type to each user as before.)

Engine/Package vs. Core Licenses

SAP S/4HANA’s core license (often called Enterprise Management) covers a broad set of ERP functions, but not everything. Some specialized or advanced capabilities still require their own licenses.

The difference from ECC is that S/4HANA’s core includes more out-of-the-box – some modules that were separate in ECC are now part of the standard S/4 package. (For example, basic warehouse management functionality is embedded in S/4HANA without extra cost.)

However, add-ons like full Extended Warehouse Management (EWM), advanced supply chain modules, or industry-specific solutions (for retail, utilities, etc.) usually remain separate licenses or cloud services.

These are typically sold based on usage metrics (e.g., number of warehouse transactions or sales orders processed) rather than on a per-user basis. A significant improvement is that S/4HANA no longer requires additional named-user licenses for these add-ons.

If a user has an S/4HANA core license, they can use any licensed engine or add-on without needing a separate user license for that component.

This simplifies licensing compared to ECC, where you often needed to license both the engine and the users of that engine.

Migration tip:

Map your ECC “engine” licenses to S/4HANA equivalents early. Identify which former add-ons are now included in the S/4 core (so you don’t overbuy), and which ones will require a new license or subscription.

Some products might have new names or be sold only as cloud services in the S/4 era. Knowing this before you negotiate your S/4HANA contract will help you cover all necessary functionality and avoid gaps or unwelcome surprises.

For example, under ECC, you might have licensed SAP’s Warehouse Management engine and needed separate “Warehouse User” licenses.

In S/4HANA, basic warehouse management is included in the core, and even if you need the advanced EWM module, you license that module by usage (e.g., number of warehouse transactions).

Still, no extra user licenses are required for your warehouse workers beyond their core S/4 user license. This elimination of double licensing is a cost benefit of moving to S/4HANA.

ECC Deadlines and Migration Pressure

Standard support for SAP ECC ends in 2027, with extended maintenance (at a higher cost) until 2030. In effect, staying on ECC beyond that is costly and risky, so a move to S/4HANA is on the horizon for everyone.

SAP is urging customers to migrate early by offering conversion credits and discounts. If you move now, your existing ECC investment can offset S/4HANA costs, and you avoid extended support fees.

As the deadline approaches, SAP’s incentives shrink. Early adopters get better deals because SAP wants success stories; last-minute migrators have little leverage and may pay more. The bottom line: start planning and negotiating well before 2027, when you still have leverage.

Negotiation Power Plays for S/4HANA Licensing

If you’re entering discussions with SAP about S/4HANA licensing, consider these strategies to secure a better deal and minimize risk:

• Demand credits for unused ECC licenses: Leverage the investment you’ve already made. Make sure SAP applies credit for your existing ECC licenses when transitioning to S/4HANA, so you don’t pay twice for the same capability.
• Cap subscription uplifts: Negotiate a limit (e.g., no more than 3% per year) on how much your subscription fees can increase at renewal. This prevents unexpected cost spikes down the road.
• Negotiate exit clauses: If you go with a RISE or cloud subscription, build in an exit strategy. For example, ensure you can export your data and leave the service after a term, or even convert to on-prem licenses if needed. Avoid feeling 100% locked-in.
• Secure price protections for growth: Anticipate your future needs. If you might add users or modules later, negotiate those expansion prices now. Lock in the discount or rate for additional licenses to avoid paying full price in a year or two.
• Use the deadline as leverage: Remind SAP that the 2027 deadline is a motivator for both sides. You know you need to move, but SAP also wants your business to move sooner. Use that to push for migration incentives – essentially, “if you want us on S/4HANA now, make it worth our while.”

Licensing Models Compared

Below is a summary comparing the main licensing approaches for SAP S/4HANA:

FAQs

• Do I need to re-buy licenses for S/4HANA? → No – SAP offers conversion credits so you don’t pay twice, but you must negotiate the details.
• What happens to my ECC licenses after migration? → They’re converted or retired – often with credits for what you’ve already paid.
• Is cloud more expensive than on-prem long term? → Often yes – subscriptions can cost more in the long run (since you keep paying), though they include infrastructure.
• Can I still run S/4HANA on-premise with perpetual licenses? → Yes – you can still run S/4HANA on your own infrastructure with perpetual licenses. SAP will push the cloud model, but the on-prem option remains available.
• When is the best time to negotiate my S/4HANA deal? → Before 2027 – early negotiations get better incentives; waiting means less leverage.

For more insights on the licensing metrics, see SAP S/4HANA User Licensing Metrics – Named Users vs. Full User Equivalents.

Five Expert Recommendations

1. Audit your ECC usage and map it to S/4HANA: Know what you have (licenses and modules) and what you’ll need in S/4HANA. This prevents over-buying and ensures you address all critical components during migration. This process also reveals any licenses or users you can drop, so you only buy what you need in S/4HANA.
2. Benchmark subscription vs. perpetual costs: Don’t assume the cloud is cheaper. Calculate the long-term costs of S/4HANA subscription vs. keeping an on-prem model (including infrastructure). Use these numbers to inform your decision and strengthen your negotiation with SAP, and give you data to push back if the cloud price seems too high.
3. Push for ECC conversion credits and cap future cost increases: Leverage any conversion credits for your existing licenses to reduce S/4HANA costs. Also, negotiate caps on recurring fees (e.g., limit annual price increases) to avoid budget surprises after you’ve migrated.
4. Maintain flexibility in agreements: Avoid lock-in by ensuring your S/4HANA contract (especially if cloud) has provisions for adjustments. For example, a clause to export your data and revert to on-prem if needed, or at least the ability to scale down volumes on renewal, will protect you if your business needs change.
5. Use the 2027 deadline to your advantage: Don’t procrastinate, but also don’t let the deadline panic you into a bad deal. Start talks early and let SAP know you have a plan. SAP’s need for migration success stories can translate into better discounts and terms for you – if you negotiate when time is still on your side.

By educating your team on these licensing changes and planning, you can make the move to S/4HANA an opportunity to optimize costs and terms, instead of a rushed reaction to deadlines. S/4HANA is SAP’s future — understanding its licensing now will pay off in smoother negotiations and potentially significant savings for your organization.

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