SAP S/4HANA Migration Contracts & Negotiation: RISE, On-Premise, and Private Cloud

SAP S/4HANA Migration Contracts & Negotiation

Introduction: Why SAP S/4HANA Migration Contracts Matter in 2025

SAP’s deadline to end support for ECC (SAP’s legacy ERP) by 2027 is looming. Many enterprises are under pressure to migrate to SAP S/4HANA before maintenance extensions get expensive in 2028–2030.

However, moving to S/4HANA isn’t just a technical upgrade – it’s a fundamentally different SAP S/4HANA migration contract and licensing model. New options, such as RISE with SAP, on-premise S/4HANA, and private cloud deployments, each carry distinct costs and lock-in risks.

A poorly negotiated S/4HANA deal can undermine the business case, leading to higher costs and less flexibility.

CIOs, CFOs, and procurement leaders must scrutinize the fine print of S/4HANA contracts to optimize costs and preserve future flexibility.

SAP S/4HANA Licensing Models Explained

When transitioning from SAP ECC to S/4HANA, one of the first decisions is choosing between an on-premise deployment or a cloud subscription.

S/4HANA on-premise vs cloud licensing comes down to how you pay and who manages the system:

• On-Premise (Perpetual License): Buy the S/4HANA software outright (capex) and pay ~22% yearly for support. You manage your own infrastructure (on-site servers or cloud IaaS) and control upgrade timing. It offers maximum control and customization, but costs are heavily front-loaded, and you bear all maintenance responsibility.
• Cloud Subscription (SaaS): Pay a recurring fee (opex) for S/4HANA (via RISE with SAP or another SAP cloud). The subscription covers software, support, and hosting, with SAP handling system upkeep and upgrades. This model offers flexibility—you can adjust usage at renewals and avoid a large upfront cost. However, you don’t own the software; if you stop paying, you lose access.

Perpetual vs Subscription S/4HANA Licensing

In summary, the trade-off between SAP perpetual licensing and subscription is between upfront investment and control (perpetual) versus ongoing costs and convenience (subscription).

Each enterprise must weigh the financial impact and flexibility needs when evaluating S/4HANA contract models.

RISE with SAP Licensing Model

RISE with SAP is a bundled subscription offering that SAP pitches as “business transformation as a service.”

Under RISE with SAP licensing, customers get S/4HANA software, cloud infrastructure, and SAP’s technical services in one package.

Key features of RISE include:

• All-Inclusive Subscription: RISE bundles S/4HANA software, infrastructure hosting, and support services into one contract. This simplifies billing but reduces transparency into individual cost components.
• Private or Public Cloud Options: RISE can be deployed as a single-tenant private cloud (dedicated instance) or a multi-tenant public cloud. In both cases, SAP handles the system administration and updates.
• Locked-In Term: RISE contracts require a 3–5 year commitment. You’re locked in for the term, with penalties for early exit.

SAP positions RISE for customers seeking a rapid cloud transformation without having to manage infrastructure.

It’s often marketed as the easiest path from ECC to S/4HANA in the cloud. Evaluate RISE’s pricing model against alternatives – sometimes a standalone S/4HANA license with third-party hosting can be more cost-effective or flexible.

SAP Private Cloud vs Public Cloud vs On-Premise

Not all “cloud” deployments are equal. It’s critical to distinguish between running S/4HANA on-premise, in a private cloud, or in SAP’s public cloud.

The table below compares these models:

In short, heavily customized environments lean toward on-premise or private cloud for control, while those needing speed and standardization consider the public cloud—but always weigh the lock-in risk.

S/4HANA License Conversion Options

Migrating from SAP ECC to S/4HANA also means converting your existing licenses to the new model.

SAP provides a few paths for S/4HANA conversion licensing:

• Product Conversion: Swap your ECC licenses one-for-one into S/4HANA licenses under your current contract. This preserves your existing discounts. It’s straightforward (no big new purchase needed), but you can’t reduce any excess licenses or change license types in the process.
• Contract Conversion: Replace your entire ECC agreement with a new S/4HANA contract. SAP gives credit for your returned ECC licenses (often based on your current maintenance spend) to offset the new contract’s cost. This lets you drop unused licenses and adopt new licensing metrics or cloud subscriptions. The trade-off: you forfeit any grandfathered terms and discounts – the new contract uses SAP’s latest pricing and conditions, which are often less favorable.
• Compatibility Packs: Temporary rights that allow certain legacy ECC functions to run in S/4HANA when no equivalent S/4 feature exists yet. These packs serve as a short-term bridge and are set to expire by 2030. You must transition those processes to native S/4HANA before then to avoid compliance issues.

When planning your conversion, avoid the extremes of overconversion (moving more licenses than needed, which wastes budget on shelfware in S/4) and underconversion (moving too few, which can leave you non-compliant and force expensive true-ups later). Analyze your current usage and future needs to right-size your S/4HANA licenses.

Hidden Costs in S/4HANA Migration Contracts

Beyond headline license fees, be wary of several hidden costs that can lurk in an S/4HANA migration deal:

• Subscription Uplifts: Cloud subscription contracts often include automatic annual price escalators. Without a negotiated cap, you might see 3–5% increases each year, which add up significantly over time.
• Indirect/Digital Access: If non-SAP systems (e.g., a web portal or CRM) indirectly use SAP data, you may face digital access fees. For example, if an e-commerce site creates sales orders in S/4HANA, SAP could require a license for that. Understand SAP’s indirect usage policy and consider document-based licensing or a negotiated waiver to avoid surprise costs.
• Dual Licensing During Transition: If you run ECC and S/4HANA in parallel during a phased migration, you could end up paying for both systems at once (ECC maintenance and S/4 subscription). Negotiate dual-use rights or migration credits so that during an agreed period, you can operate both without double-paying.
• Implementation and Services: Licensing fees don’t cover the actual migration project. Budget for data migration, system integrators, re-customization, testing, and training. These services often cost as much as or more than the software. A low license price isn’t a bargain if you haven’t accounted for the implementation costs.

Negotiation Strategies for S/4HANA Licensing Contracts

A savvy SAP contract negotiation strategy can significantly reduce costs and risks. Consider these tactics when negotiating your S/4HANA migration deal:

• Leverage Existing Investments: Demand credit for your ECC investment (e.g., have SAP apply your past maintenance spend toward S/4HANA). Don’t let them treat you like a new customer paying full price.
• Tighten Contract Terms: Negotiate protective SAP contract terms and conditions. Cap SAP’s audit frequency and limit your exposure if compliance issues arise. Lock in a cap on subscription price increases at renewal. If possible, include a clause allowing early termination for poor service or a major strategy change.
• Bundle for Bargaining Power: If you need other SAP products, negotiate them together to gain discount leverage. Just ensure every product is separately priced and truly needed to avoid paying for shelfware.
• Push Back on Cloud-Only: Don’t buy into SAP’s “cloud or nothing” narrative. Make clear you’re willing to stay on ECC or go with an on-prem/hybrid S/4HANA if the cloud deal isn’t compelling. This stance often forces SAP to offer better pricing or concessions.

SAP Contract Terms to Watch in Migration Deals

When reviewing the fine print of an S/4HANA contract, pay close attention to these areas:

• Audit Clauses: Limit SAP’s audit rights. Negotiate a narrow audit scope and a grace period to resolve any license shortfalls by purchasing needed licenses rather than facing immediate penalties.
• Renewal & Price Increases: For subscriptions, clarify what happens at renewal. Negotiate a cap on any price increase at renewal (or lock in a fixed renewal price) to avoid unwelcome surprises later.
• Flexibility & Exit Options: Negotiate flexibility provisions. For example, secure rights to swap cloud licenses to on-prem (or vice versa) if needed, and make sure SAP will assist with data export and transition at the end of the term. Without such clauses, you risk getting locked in or facing high costs to change course.
• Indemnity & Liability: SAP limits its liability—push for a higher cap and for credits if downtime occurs. Also, ensure SAP indemnifies you (covers any third-party IP claims). You are entrusting critical systems to SAP’s cloud, so get as much protection as possible.

Building a Financial Case for S/4HANA Migration

CFOs and finance committees will scrutinize the ROI of an S/4HANA migration. Build a solid financial case that compares all options:

• TCO & Cost Models: Calculate the 5–10 year total cost for each scenario – staying on ECC, migrating to S/4HANA on-premise, or moving to S/4HANA in the cloud. Include all direct and indirect costs (software, support, infrastructure, implementation, etc.). Also, compare the cash flow of buying licenses (capex + maintenance) versus subscribing (opex). Identify the breakeven point where the cumulative subscription cost surpasses the perpetual license cost. Also factor in future cost risks (e.g., paying for extended ECC support or facing price hikes if you delay migration).
• Tangible Benefits & ROI: Don’t just focus on costs – include potential benefits of S/4HANA. Quantify any efficiency gains or business improvements the new system might bring (process automation, better analytics, reduced legacy system costs). Be realistic and use your own data rather than SAP’s sales promises. If you can credibly show that these benefits will offset a portion of the cost, it frames the migration as an investment in future capabilities rather than just an expense.

By presenting side-by-side scenarios and a clear ROI analysis, you can make a compelling case for the best path forward. It also arms your team with data to drive a harder bargain with SAP, since you’ll clearly understand the cost implications of each option.

Related articles

• ECC to S/4HANA Migration Licensing: All Options Explained
• Negotiation Tips for Your S/4HANA Conversion Contract (On-Prem or RISE)
• Hidden Costs and “Gotchas” in SAP S/4HANA Migration Deals
• SAP RISE vs DIY Cloud Hosting: Contractual Pros & Cons
• After the Go-Live: Optimizing Your SAP Licenses Post-Migration

FAQ: SAP S/4HANA Migration & Licensing Contracts

Q1: What is the difference between SAP S/4HANA on-premise vs cloud licensing?
A1: On-premise uses perpetual licenses plus annual maintenance. Cloud (RISE or SaaS) is subscription-based and bundles the software, infrastructure, and support into one recurring fee.

Q2: What is an SAP product conversion?
A2: It’s a one-for-one swap of your current ECC licenses for equivalent S/4HANA licenses under your existing contract, preserving your investment and terms.

Q3: What is a contract conversion in S/4HANA migration?
A3: It’s a complete replacement of your ECC contract with a new S/4HANA agreement. You return your old licenses for credit and start fresh under updated terms.

Q4: What are SAP Compatibility Packs?
A4: Temporary rights to use certain old ECC functionalities in S/4HANA when no S/4 replacement exists yet. They expire by 2030, so you must replace those components by then.

Q5: Can I negotiate RISE with SAP pricing?
A5: Absolutely. SAP often discounts RISE deals based on factors like deal size, competitive pressure, and your commitment to its cloud roadmap.

Q6: Do I need to pay for both ECC and S/4HANA during migration?
A6: Not if you negotiate properly. Without special terms, you would pay for both. Negotiate dual-use rights to avoid double-paying.

Q7: Can I move from S/4HANA on-premise to RISE later without penalty?
A7: Not under standard terms. If you foresee that need, negotiate a clause upfront giving you rights to swap on-prem licenses to RISE (or vice versa) later without penalty.

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