SAP S/4HANA Negotiations
Negotiating SAP S/4HANA contracts requires a proactive strategy and deep understanding of SAP’s licensing models.
Whether sticking with on-premise licenses or embracing RISE with SAP cloud subscriptions, enterprises must drive the conversation to secure cost efficiencies and flexibility.
The key takeaway: treat an SAP S/4HANA deal not as a one-time transaction but as a long-term partnership – one where cost containment and avoiding vendor lock-in are achieved through savvy contract negotiation upfront.
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SAP S/4HANA On-Prem vs. SAP Cloud (RISE) Licensing
SAP S/4HANA can be licensed either through traditional on-premise perpetual licenses or via SAP’s RISE with SAP cloud subscription model.
Each approach has distinct cost structures and negotiation dynamics that IT leaders must understand upfront.
On-premise licensing involves a one-time license purchase (capital expense) plus ongoing annual maintenance fees (usually around 20% of license value).
In contrast, RISE with SAP offers a bundled SAP Cloud contract on a subscription basis – combining software, infrastructure, and support into a single recurring fee. Understanding these models is critical, as it shapes how you negotiate pricing and terms from the start.
On-premise S/4HANA gives companies perpetual usage rights and more control over their environment, but it requires managing their infrastructure or hosting. RISE with SAP, on the other hand, shifts infrastructure responsibility to SAP (or its cloud partners) and simplifies the landscape into one contract.
However, that convenience can come with less flexibility – you effectively outsource control to SAP, which can increase vendor lock-in if not carefully mitigated.
Critically, moving to RISE often means converting your existing licenses into a subscription; enterprises should demand fair credit for prior investments and ensure they’re not paying twice for the same capabilities.
Read SAP Negotiation Mistakes to Avoid.
The table below compares key aspects of traditional on-prem versus RISE licensing:
| Aspect | On-Premise S/4HANA License | RISE with SAP (Cloud) |
|---|---|---|
| License type | Perpetual license (one-time purchase) + annual maintenance fees | Subscription service (software + infrastructure + support) |
| Cost model | Upfront CAPEX + ~20% yearly maintenance (OPEX) | Recurring OPEX subscription (multi-year contract) |
| Infrastructure | Customer-managed (on your servers or chosen cloud) | SAP-provided (hosted by SAP or hyperscaler as part of contract) |
| Contract term | No fixed term (perpetual use; maintenance renewable annually) | Fixed term (typically 3–5 years, renewal required) |
| Scalability | Add licenses as needed (can buy more anytime, but can’t easily reduce license count) | Commit to a set number of users/resources (FUEs); limited ability to scale down mid-term |
| Key negotiation focus | License discount, maintenance cap, usage rights (indirect use), audit protections | Subscription discount, renewal price caps, service scope (SLAs, DR), exit options |
| Vendor lock-in risk | Lower – you retain software rights even if maintenance ends (though unsupported) | Higher – if contract ends, access to software stops unless you re-license or extend |
SAP S/4HANA Contract Negotiation Strategies
Effective contract negotiation for SAP S/4HANA begins long before sitting at the table with SAP’s sales team.
Preparation is paramount: assemble a cross-functional negotiation team (IT, procurement, finance, and legal) and take stock of your current SAP usage and needs.
Evaluate what licenses you have, how they’re utilized, and where you have leverage – for instance, identify any unused licenses (shelfware) that you could terminate or repurpose, and note upcoming projects that will drive demand.
Going in armed with data (e.g., actual user counts, transaction volumes, and a clear future roadmap) shifts power to you.
SAP often relies on customers not fully understanding their usage; proving you know your environment cold lets you push back on upsells and scare tactics.
Be clear on your must-have terms and your walk-away point before formal talks start. Decide internally what price and conditions you need, such as a target discount percentage or critical clauses like flexibility to adjust licenses.
During negotiations, control the pace and narrative. Do not rush just because SAP is pushing a quarter-end deadline or warning about support deadlines (like the 2027 end-of-support for ECC).
Use those deadlines to your advantage instead: SAP’s urgency for a deal can translate into extra concessions if you hold firm.
Some companies have secured 10–20% additional discounts by timing the final signature to align with SAP’s fiscal year-end, when sales teams are under pressure.
Also, subtly remind SAP that you have options – whether extending your current system a bit longer or even evaluating alternate solutions.
Even if switching away from SAP is unlikely, hinting at competition (Oracle, Workday, etc.) or a willingness to delay gives you negotiating power. The goal is to make SAP compete for your business on your terms, rather than you feeling captive to their product.
Read SAP RISE Negotiations: Key Strategies for Cost and Risk Control.
Pricing and Cost Containment in SAP Deals
SAP’s pricing is notorious for its complexity and high list prices, but savvy customers know that almost everything is negotiable. Achieving a steep discount off SAP’s initial quote is the norm, not the exception – but only if you ask for it and back your ask with justification.
Always request a detailed breakdown of costs. In S/4HANA proposals, this might include software license components, cloud infrastructure costs, and support services.
By deconstructing the quote, you can identify areas to push back. For example, if SAP bundles an extra product or module you didn’t plan to use, challenge it or remove it to avoid shelfware costs.
It’s common for an initial proposal to contain 30–40% in “fluff” that can be negotiated out through line-by-line scrutiny.
To contain costs in your SAP S/4HANA deal, use every lever at your disposal:
- Benchmark and Aim High: Come armed with industry pricing benchmarks or past deals. If SAP initially offers a 10% discount, counter by referencing what peers achieved (e.g., 50% off list) and aim higher. SAP expects negotiation – don’t settle for their first number.
- Claim Credits for Past Spend: If you’re migrating from an older SAP system or moving to RISE, demand credit for the investments you’ve already made. For example, convert unused ECC licenses or maintenance fees into equivalent value offsets in the new contract. This ensures you’re not paying twice for the same functionality.
- Lock in Future Rates: Try to cap or fix future price increases. For on-premise, negotiate limits on annual maintenance uplift or the right to reduce maintenance costs if usage drops. In cloud subscriptions, push for a ceiling on renewal rates (e.g., no more than a 5% increase per renewal term) to prevent post-deployment cost spikes.
- Buy for Today, Not 5 Years Out: Don’t over-provision licenses based on ambitious growth forecasts. It’s better to negotiate additional licenses later under similar discounts than to pay and maintain surplus capacity you might never use. Start with what you need now; you can scale up as needed with a pre-negotiated discount structure.
Ensuring Flexibility and Avoiding Vendor Lock-In
A major negotiation goal should be preserving flexibility for the future, so SAP doesn’t handcuff your company down the road. This means building provisions into the contract that prevent vendor lock-in and guard against nasty surprises later.
One critical term is the renewal clause: if you’re signing a multi-year subscription (as with RISE or any cloud deal), negotiate a cap on renewal price increases.
For example, lock in that upon renewal the fee cannot rise more than, say, 5% per year or a one-time X% jump. Without a cap, SAP could hike your costs significantly when you’re dependent on their platform.
Beyond price caps, ensure other contractual protections are in place:
- Scalability Clauses: Cloud deals often lock you into a fixed number of users or capacity for the term. Negotiate some wiggle room. For instance, secure the right to adjust your user count upward at a pre-negotiated rate (so any growth is priced fairly), and seek options for downscaling if business needs change. At minimum, insist that any additional licenses or resources you add later inherit the same discount as the initial purchase, preventing SAP from charging a premium when you expand.
- Scope and SLA Clarity: Don’t assume everything is included in that glossy proposal. Spell out what services and environments are covered. If you need a disaster recovery environment, non-production (dev/test) systems, or specific security features, get them written into the contract now. Similarly, define performance guarantees: if SAP promises 99.5% uptime, what happens if they miss it? Negotiate meaningful service level agreements with credits or penalties that incentivize SAP to deliver quality service.
- Exit and Transition Rights: Plan your exit strategy on day one. Push for terms that let you extract your data easily and fully at contract end. Ideally, negotiate a grace period of read-only access to your SAP data after termination, or even an option to convert to a perpetual S/4HANA license at end-of-term at a predetermined cost. While SAP may resist, having any defined exit pathway prevents feeling like a hostage later. The objective is to avoid a scenario where, after years of investment, you have no leverage and no alternative but to renew on SAP’s terms.
Common SAP Negotiation Mistakes to Avoid
Even seasoned IT procurement teams can stumble during SAP negotiations. Watch out for these common pitfalls:
- Buying Too Much, Too Soon: SAP’s sales pitch often encourages you to “future-proof” your purchase by buying extra licenses or services upfront. This usually results in shelfware – licenses you pay for and maintain but don’t use. Avoid overbuying “just in case.” It’s wiser to start with what you need now and add later, rather than pay for five years of capacity upfront.
- Not Getting It in Writing: Verbal assurances from sales reps are meaningless if they’re not in the contract. If SAP promises you can swap users, migrate to the cloud later, or get a certain discount on future modules, insist that it’s written into the agreement. Handshakes and friendly emails won’t protect you in a compliance audit or when that salesperson moves on.
- Ignoring Indirect Access: One of the costliest mistakes is forgetting about indirect use licensing. If third-party systems or websites connect to your SAP system, SAP may later claim license fees for that usage. Don’t leave this ambiguous – negotiate and clarify how indirect access will be handled (SAP’s Digital Access model or a blanket license) to avoid surprise charges down the line.
- Letting SAP Set the Timeline: Rushing to sign because “the deal expires this month” or because you’re trying to please an SAP account executive is risky. Time pressure is a tactic. Instead, slow down the process to ensure you’ve reviewed every term. Deadlines imposed by SAP can often be extended; they’re keen to close the deal, and a good offer will usually still be there next quarter if you push back.
- Internal Misalignment: SAP will often engage multiple stakeholders (CIO, CFO, technical teams) to create confusion or find a champion on their side. If your team isn’t united, SAP can exploit that. Make sure procurement, IT, and executives are on the same page about what the business truly needs and what the walk-away terms are. A single, coordinated message to SAP prevents mixed signals that could weaken your negotiating position.
Recommendations
- Start Early with a Plan: Begin your S/4HANA licensing planning well in advance. Form a negotiation team that includes IT, procurement, finance, and legal. Identify your business requirements, ideal outcomes, and fallback positions before you engage SAP.
- Know Your Baseline: Conduct a thorough audit of your existing SAP usage and costs. Understand exactly what you have (and don’t use), and use that data to drive negotiations. Leverage independent benchmarks to set an aggressive discount target and validate that SAP’s offer is in line with market norms.
- Define “Walk-Away” Terms: Decide the maximum you’re willing to pay and the minimum contract terms you need (e.g., ability to swap user types, a cap on increases, inclusion of specific components). Having predetermined walk-away criteria empowers you to say “no” if SAP won’t meet your requirements.
- Negotiate Beyond Price: Price is just one aspect. Push hard on critical terms like renewal rate caps, flex rights for increasing or decreasing usage, clear definitions of license metrics, and protections against indirect usage fees. Ensure every promise or assumption is codified in the contract.
- Leverage Timing, Not Vice Versa: Plan your negotiation timeline strategically. Use SAP’s quarter-end or year-end pressure to extract better discounts, but don’t let their sales timeline dictate signing before you’re ready. It’s better to miss a “promo” deadline than to lock into a bad deal.
- Secure an Exit Strategy: Don’t sign without an escape plan. Ensure the contract outlines what happens at the end of the term or if you need to change course. Whether it’s data export rights, transition assistance, or the option to revert to on-premise, make sure you’re not permanently stuck if circumstances change.
- Stay in Control: Throughout the process, keep your internal team aligned and present a united front to SAP. Don’t let vendor pressure or internal politics derail your strategy. Remain factual and business-focused – SAP will respect a customer who negotiates confidently and knowledgeably.
Read SAP SuccessFactors Contract Negotiation Strategy.
FAQ
Q: When is the best time to negotiate an SAP S/4HANA contract?
A: The best time is when you have the most leverage, often aligning with SAP’s quarter-end or fiscal year-end. SAP’s sales reps are under pressure to hit targets, which can translate into extra discounts or incentives for you. However, only use these time pressures to your advantage if you’re fully prepared; never rush into a contract just to meet a vendor’s deadline.
Q: How much of a discount can we expect off SAP’s list price?
A: It varies, but substantial discounts are common. For on-premise S/4HANA licenses, 50% or more off the list price is not unusual for a well-negotiated deal, especially for large enterprise agreements. With RISE subscriptions, discounts might manifest as credits or reduced fees – e.g., SAP might give significant migration credits or 20–30% off the initial subscription quote. The key is to come with data and push beyond SAP’s first offer.
Q: Should we choose RISE with SAP (cloud) or stick with on-premise S/4HANA?
A: It depends on your business needs and risk tolerance. RISE with SAP offers convenience (all-in-one cloud service) and can accelerate transformation, but it also means giving more control to SAP and being locked into their cloud ecosystem. On-premise (or a third-party cloud hosting your licenses) gives you more control and flexibility, but you manage more pieces. Negotiation-wise, SAP is keen to sell RISE, so you might get better incentives for going that route – just be sure you negotiate the terms to protect yourself (on pricing, renewal, exit options). Always compare the total 5-year costs and terms of both options before deciding.
Q: What key terms should we focus on in a cloud contract like RISE with SAP?
A: Besides the obvious (price), focus on: renewal rate caps (to control future price hikes), scope of services (ensure things like test systems and disaster recovery are included), SLAs (uptime guarantees and penalties if not met), and exit rights (your rights to get data out and potentially transition off if needed). Also, clarify how increases in usage are handled (can you add users at the same discount?) and how any unique needs (security, data location) are addressed. These terms determine your long-term satisfaction and costs as much as the upfront price.
Q: How can we avoid unexpected costs or compliance issues later on?
A: The contract should proactively address common risk areas. Make sure any indirect access (third-party system use) is accounted for in the license model or via a blanket agreement to avoid future audit penalties. Include clauses that require transparency in any new licensing needs (no surprise fees for new products unless agreed). And always maintain good internal license management – track your SAP usage against entitlements so you’re not caught off guard. Essentially, negotiate with the mindset of “no surprises later,” putting guardrails in the contract for anything that could become a dispute or extra cost down the road.
Read about our SAP Contract Negotiation Service.
