SAP S/4HANA Licensing FAQ
Licensing decisions will define 50–70% of your total S/4HANA migration cost – often far more than implementation spend. Yet many executive teams dive into S/4 projects without a firm grasp of SAP’s licensing models and traps, leading to budget surprises.
SAP’s sales pitch often makes a “cloud migration” sound inevitable, but CIOs and CFOs must understand the contractual trade-offs and long-term cost implications before signing anything.
This FAQ cuts through the marketing noise and provides a negotiation-focused view, so you can make informed decisions in the boardroom.
Expert Insight: “Licensing is where most S/4HANA migrations lose budget control — before they even start.”
Use this guide as a pre-decision checklist and myth-buster. Each question gets a straight, skeptical answer to help you challenge assumptions and safeguard your budget.
For an overview, read our SAP S/4HANA Licensing Guide: Models, Costs, and Migration Insights.
S/4HANA Licensing FAQ – Core Questions (CIO Edition)
Q1. What are my main licensing options for S/4HANA?
You have two primary options: Perpetual licensing (on-premises) or Subscription licensing (Cloud/RISE). With a perpetual on-premise license, you buy the S/4HANA software upfront and own it indefinitely, then pay an annual support fee (about 22% of the license cost) for maintenance. With a subscription (e.g. RISE with SAP or S/4HANA Cloud), you essentially rent the software – you pay a recurring fee (monthly or yearly) that includes the software, hosting, and basic support, but you don’t own the software outright. Each model has pros and cons: owning licenses gives you more control and potentially lower long-term costs, while subscribing shifts spending to OpEx and bundles infrastructure and upgrades for convenience. CIO Focus: Choose the model based on your organization’s flexibility and control needs, not just SAP’s cloud roadmap. On-premises might align better if you want autonomy, whereas RISE (cloud) offers simplicity at the cost of some control.
Q2. Does SAP force customers to move to the cloud?
No – there is no forced cloud migration (SAP will support S/4HANA on-premise at least through 2040). However, SAP’s sales teams heavily incentivize and push cloud adoption. You can absolutely stay on a perpetual license for S/4HANA on-prem if that suits your strategy. Just be aware that staying on-prem may mean you get new features a bit slower (some innovations appear in cloud editions first), and you might feel subtle pressure in pricing or support terms over time, nudging you toward cloud. The bottom line: the choice is yours, not SAP’s, but you’ll need a clear business case to stick with on-premises if SAP is lobbying for RISE.
Q3. What happens to my existing ECC licenses?
If you’re currently running SAP ECC, you’ve likely invested heavily in those licenses – the good news is you can convert them to S/4HANA licenses in many cases. In a brownfield migration (upgrading your existing system to S/4HANA), SAP offers conversion programs to credit your ECC licenses toward S/4HANA. But SAP won’t volunteer these credits – you must bring them up and negotiate early. Typically, you’ll get a certain value or discount for each ECC user or package you retire in favor of S/4 (often called conversion credits or license transfer credits). Without a conversion, your ECC licenses could turn into shelfware once you go live on S/4 – unused assets still on your books. So plan ahead: negotiate those credits and ensure the old ECC licenses are formally decommissioned (so you stop paying maintenance on them). In a RISE (cloud) migration, this is even more important, as your on-prem ECC licenses would be terminated when you switch to subscription – you want some incentive or trade-in value for giving up that perpetual ownership. Read more about the differences in licensing, S/4HANA vs ECC Licensing Differences: What Changes When You Migrate.
Q4. What’s the difference between Named User and Full Usage Equivalent (FUE)?
Named User licensing (used in on-prem models) means each user is licensed, often categorized by type (Professional User, Limited User, Employee Self-Service, etc.). You purchase a specific number of each user type. Full Usage Equivalent (FUE) is a metric used in S/4HANA Cloud and RISE subscriptions: instead of counting distinct named individuals, SAP aggregates usage in a point system. Different user roles are assigned weights (for example, a heavy “Advanced” user might count as 1.0 FUE, a lighter “Self-Service” user might be 0.1 FUE). Your total FUE count is the sum of all those weighted users, and that’s what you subscribe to. This approach can simplify contracts, but it can also obscure the real user count and inflate costs if not managed. CIO Action: Before signing a cloud deal, remap and validate all user roles to ensure SAP’s FUE calculation isn’t overestimating your needs. If you blindly accept SAP’s default FUE ratios, you could end up paying for far more “users” than you actually have – FUE miscalculations have led some companies to nearly double their costs. Take the time to right-size user categories in advance.
Q5. Is RISE with SAP the same as S/4HANA Cloud?
Not exactly – RISE with SAP is a bundle or program, whereas S/4HANA Cloud refers to the software delivered as a service. Think of RISE as an all-in-one offering: it packages S/4HANA licensing, the cloud infrastructure (hosting on SAP’s or a hyperscaler’s servers), and support services into one contract managed by SAP. S/4HANA Cloud, on the other hand, comes in different flavors: Public Cloud (multi-tenant), which is a highly standardized SaaS, and Private Cloud (single-tenant, often the version used in RISE), which is essentially your own instance of S/4HANA managed by SAP. RISE commonly uses the private cloud edition, but wraps it with one set of terms, with SAP as your single point of control. CIO Tip: RISE offers convenience – SAP handles the tech stack and you get one bill – but it also means less control and more lock-in. In a pure S/4HANA Cloud (especially public cloud), you trade off some flexibility (e.g., limited customization and SAP-driven update schedules) for simplicity. In summary, RISE = S/4HANA (usually private cloud edition) + cloud infrastructure + support, all bundled. It’s great if you want a turnkey solution, but be mindful that you’re ceding a lot of control to SAP in the process.
Q6. How does HANA licensing affect cost?
SAP HANA is the in-memory database under S/4, and its licensing is typically based on memory size (GB of RAM) if you’re buying it outright. This can be a major cost element. Oversizing your HANA instance – allocating more memory than you truly need – will cause you to overpay. For on-premise deployments, you might buy a HANA runtime license (cheaper, but only for SAP apps) or a full HANA license (allows broader use, but expensive). In cloud subscriptions (RISE), the HANA database cost is bundled in, but you’re still indirectly paying for the size of your system (bigger database = higher subscription fee). Action: Optimize your HANA sizing early. Conduct a careful sizing exercise or proof-of-concept to determine the exact amount of memory required for your data and workload. Then negotiate flexibility to adjust – for example, rights to reduce the subscription cost if you purge data or to scale up without astronomical cost if data grows. The goal is to avoid paying for HANA capacity you don’t use. A common pitfall is simply accepting SAP’s sizing, which may be padded “just in case.” Right-size it and insist on the ability to revisit the sizing annually.
Q7. Can I reduce costs by dropping maintenance or using third-party support?
For perpetual (on-premise) licenses: Yes, you have the option to drop SAP’s maintenance and support, which immediately saves that ~22% annual fee. Some organizations with stable systems choose to do this and either run without SAP support or hire third-party support providers (firms like Rimini Street, etc.) at maybe 50% of SAP’s maintenance cost. However, doing so means you won’t get new updates or official fixes from SAP, and it can complicate a future migration (SAP might penalize or charge back support if you later rejoin). The smart move is to drop maintenance on licenses you aren’t actively using (shelfware) to cut costs, but think twice before cutting support on your core production system unless you have a long-term plan. For RISE or subscription models: No, you cannot unbundle maintenance – support is built into the subscription, and there’s no way to not pay it. You’re paying for a service package, so reduction isn’t an option there. In summary, leverage third-party support or maintenance holidays for legacy or unused software to save money, but for mission-critical environments, ensure you have some support mechanism in place.
Q8. What’s the biggest hidden cost in S/4HANA deals?
Two big ones: over-provisioned user licenses (FUEs) and inflated HANA sizing/infrastructure. SAP’s initial proposals often overshoot on both fronts. It’s common to see SAP recommend more users or higher-tier licenses than you actually need, and to size hardware or cloud instances overly generously. This buffer can inflate your quote by 15–30%. For example, they might count every employee as a “Professional” user, even though many will hardly use the system, or assume peak system usage that’s well above realistic levels. Another hidden cost area is indirect usage/digital access (if not covered, it can bite you later), but the immediate hidden costs are usually in the quantities. Always request a transparent license mapping and sizing report. Insist that SAP shows exactly how many users of each type, how they calculated FUEs, and what assumptions went into hardware/HANA sizing. Then challenge those numbers with your own data. Many CIOs find significant savings by right-sizing the deal: trimming out shelfware licenses and scaling down the HANA footprint to what’s actually needed. In short, don’t accept SAP’s numbers blindly – they’re often padded.
Q9. How long should I lock in pricing for?
For any sizeable S/4HANA agreement, aim to lock your pricing for at least 3 to 5 years. This is especially crucial for subscription deals (like RISE) where, after the initial term, SAP might impose price hikes. Negotiate a contract that fixes the subscription rate (or maintenance rate if on-prem) for a multi-year term so you have cost certainty. Additionally, include a renewal cap clause – for instance, stipulate that after the initial term, any price increase is capped (e.g., “no more than 3% per year” or tied to an inflation index). Avoid vague “market rate” language or open-ended renewal terms; those give SAP freedom to jack up prices later. Essentially, treat it like a lease: lock in a good rate now and limit how much it can go up when it’s time to renew. CIOs who negotiate only on the upfront discount but ignore the renewal terms often get a nasty surprise 3–4 years down the road. Don’t let a great Year 1 price turn into an extortionate Year 4 price – put the limits in writing. Read more about cost drivers, S/4HANA License Cost Drivers & Optimization: How to Control Costs Before You Buy.
Q10. Can I negotiate license reductions if business shrinks?
Only if you negotiate a “true-down” clause in your contract. By default, SAP contracts (especially cloud subscriptions) are “use it or not, you still pay for it.” That means if your company downsizes, divests a division, or has fewer users than expected, you’re typically stuck paying for the originally contracted number of licenses/FUEs with no refund. To protect against this, you must get a provision that allows downward adjustment. A common tactic is to tie it to specific events: e.g., if we sell off a business unit, we can reduce our user count by X with a corresponding cost reduction, or if our transaction volumes drop by 20%, fees will adjust. SAP is not eager to grant these, but it’s not unheard of if you push for it in early negotiations – especially tied to scenarios like divestitures. At a minimum, secure the right to reduce quantities at renewal without penalty. Without a true-down, you carry the risk of overpaying for ghost users or a smaller business footprint. In summary: no clause, no reduction – so get it in writing up front.
Q11. What audit risk changes under S/4HANA?
If you go with a cloud model (RISE or S/4HANA Cloud), the classic surprise audit largely goes away – but that doesn’t mean you can’t be charged for overuse. In cloud subscriptions, SAP continuously monitors your usage (users, memory, transactions, etc.) as part of the service. If you exceed what you subscribed for, they will simply bill you for it or require you to purchase more (you’ll “audit” yourself when you see the bill). There’s no formal audit process with an audit team knocking on your door – it’s more of an automated compliance. In an on-premise S/4HANA scenario, the traditional audit risk remains similar to ECC. SAP can request an audit (usually via running USMM/LAW tools) to measure your actual use against licenses. You’ll need to stay vigilant with user counts, package usage, and indirect access compliance. One difference: S/4HANA introduced Digital Access (document licensing), which is a new area SAP might audit if not addressed in your license (covering things like documents created via non-SAP systems). Ensure you’ve dealt with that in your contract to avoid later compliance charges. Overall, cloud = no surprise audits but real-time compliance management, on-prem = periodic audits still a risk, so internal license governance is critical either way.
Q12. What’s the best time to negotiate with SAP?
Time your dealmaking to SAP’s own financial calendar. SAP’s fiscal year ends December 31, so Q4 (especially late December) is prime time – sales reps are scrambling to hit annual targets and are more likely to give concessions. End of quarter (particularly end of Q4) is when you hold the most leverage. That’s when SAP “needs” your deal to make their numbers, so they’ll be more flexible on pricing and terms. Another tip: bundle your negotiations to maximize leverage. If you have an ECC maintenance renewal coming up, or you’re also looking at buying other SAP products, align them into one negotiation and ideally in a Q4 cycle. For example, if your maintenance renewals are due in January, start negotiating in Q3/Q4. Be willing to renew or extend only as part of a larger S/4 deal, using the fact that SAP doesn’t want to lose that renewal as pressure to get better S/4 pricing. Also, don’t underestimate the power of competition and timing: letting SAP know you’re also considering other solutions or that you’re not in a rush can spur them to offer end-of-quarter discounts to close you before you look elsewhere. Hint: SAP reps often have extra discount authority in late Q4 – that’s your window to strike the best deal.
Q13. What are conversion credits, and how do I claim them?
Conversion credits are essentially trade-in discounts for moving from your old ECC licenses to S/4HANA. When you migrate, you’ve already paid for a lot of software (ECC) that you might no longer use, so naturally, you want credit for that value. SAP’s conversion programs will apply credits so that the net cost of your new S/4 licenses (or subscriptions) is lower, reflecting your past investment. However, SAP won’t automatically apply these or loudly announce them. To get them, you need to request a formal license mapping exercise from SAP or work with your SAP account team to map all your existing licenses to S/4HANA equivalents. This will show what you’re entitled to carry over. Then negotiate the credit you’ll receive – typically, SAP might offer something like “100% credit of remaining ECC license value if you move now” or a certain percentage off the S/4 list price. The key is to quantify it in your proposal. Also, get it in writing that the old licenses are being retired or swapped out, so you’re not billed maintenance on them anymore. Sometimes companies migrate and later find they’re still paying support on the legacy licenses because they weren’t formally terminated – don’t let that happen. In summary, conversion credits can be very valuable (they can save millions in large environments), but you must proactively claim them through negotiation and ensure the contract reflects those credits and the retirement of old licenses.
Q14. How do I avoid double-paying during migration?
This is a common gotcha: if you start your S/4HANA subscription or buy new licenses while still running ECC, you might end up paying for both systems at once. To avoid that, negotiate a dual-use or transition clause up front. For example, get agreement that for a defined period (say 6 or 12 months during migration), you can run both the old ECC and the new S/4HANA in parallel without paying duplicate license fees or maintenance on both. In practical terms, if you’re paying maintenance on ECC this year and you go live on S/4HANA midway, you should be able to stop paying for ECC as soon as S/4 is live (or get a prorated credit). If you’re on RISE, ask for an onboarding period where you’re not charged full boat until you fully cut over. SAP will charge for both unless you explicitly negotiate otherwise – their default stance is that you need licenses for any production system running. So include a “dual maintenance waiver” or similar clause in the contract. Also, plan your project such that the overlap is minimal, but inevitably some overlap happens (for testing, data migration, etc.). The goal is not to be in a situation where, for 3-6 months, you’re effectively paying two bills to SAP. Clear contractual language can ensure the clock stops on ECC fees the moment S/4 is up. It’s one of those details often overlooked in the excitement of a new project – until Finance later asks why costs spiked during the cutover quarter.
Q15. What’s the biggest licensing mistake CIOs make?
Treating SAP licensing as a technical afterthought instead of a strategic negotiation. Many CIOs (and project teams) get so focused on the technical migration that they accept SAP’s first licensing proposal as-is, thinking it’s just “the cost of doing business” or a fixed price. That’s a costly mistake. The SAP sales proposal is never neutral – it’s designed to maximize SAP’s revenue. The biggest mistake is not questioning it. For example, not scrutinizing the user counts, not considering alternative licensing metrics, or failing to push back on unfavorable terms. Another common error is leaving the negotiation solely to IT or SAP project managers, instead of involving procurement and licensing specialists who know how to haggle with SAP. Bottom line: Don’t simply rubber-stamp SAP’s plan. Smart CIOs will build their own internal license model and cost scenario first (based on what the business actually needs), and then use SAP’s proposal as a starting point to negotiate down or reshape the deal. Think of it like buying a fleet of vehicles – you wouldn’t just accept the sticker price and recommended add-ons without question. Approach SAP licensing with the same healthy skepticism and due diligence as any major investment or M&A deal. The “technical” details of user types, engines, and cloud metrics are actually commercial levers that you can tweak to save money. Those who ignore that end up over-licensed, over-paying, and locked into suboptimal contracts.
Cloud vs. On-Prem: Licensing at a Glance
To summarize the two main S/4HANA licensing models, here’s a quick comparison of Perpetual On-Premises vs. Subscription (RISE/Cloud):
| Factor | On-Premises (Perpetual License) | Cloud Subscription (RISE with SAP) |
|---|---|---|
| Software Ownership | You own the software license perpetually (capital asset on your books). | No ownership – you have access only for the subscription term (like a lease). |
| Cost Model | Large upfront license purchase + ~22% per year in maintenance fees. | No upfront license cost; pay recurring subscription fees (OpEx) that include software and support. |
| Infrastructure | Customer-managed infrastructure (you run it on your servers or hosting of choice). | SAP (or its cloud partner) provides hosting and technical management as part of the bundle. |
| Flexibility | You can add licenses as needed; can drop maintenance on unused licenses (shelfware) to cut costs. Hard to scale down user count after purchase (you own what you bought). | You commit to a set user count or capacity for the term. Generally no reductions allowed mid-term (no automatic “scale down”). Can increase usage (pay more) but not decrease without negotiation. |
| Upgrades | You control if/when to upgrade (but you handle the project/cost of doing so). You can even skip versions as long as you stay in maintenance. | SAP pushes regular upgrades (quarterly or yearly) to your system – you get new features continuously, but you must adapt on SAP’s schedule (cannot defer updates easily). |
| Vendor Lock-In | Lower lock-in: you possess the software rights indefinitely. You could stay on old versions or use third-party support if you leave SAP maintenance. Exit is slower (you’d run legacy system if you stop paying SAP). | Higher lock-in: if you stop subscribing, you lose the software access. Contractually locked for 3-5 year terms. At renewal, SAP has leverage since migrating off cloud is a large effort. |
Checklist: Top 5 Questions to Ask SAP Before Signing
Before you finalize any S/4HANA licensing deal, make sure to ask SAP (and yourself) these critical questions:
- “How are my existing investments being valued?” – Confirm you’re receiving all eligible conversion credits for your ECC licenses and that they’re factored into the pricing. Don’t leave your sunk cost on the table.
- “What if my usage or business changes?” – Push for clarity on flexibility: Can you adjust user counts later? Is there a true-down clause for downturns or divestitures? No answer or a vague one here is a red flag that needs addressing.
- “Show me the math behind this quote.” – Ask SAP to show the FUE and sizing calculations behind their proposal. Get a detailed license mapping of users to FUEs and an explanation of the HANA sizing. You need transparency to ensure you’re not overbuying.
- “Are indirect usage and extras covered?” – Make sure your contract covers things like Digital Access (indirect documents) or any add-on fees. If the deal doesn’t explicitly include these, ask what the cost exposure could be and how it’s handled.
- “What happens at renewal?” – Discuss the renewal terms now. Is your price locked or capped? For how long? Get clarity on any built-in escalators or the process for renewal pricing. You don’t want to be blindsided by a big jump later – get a cap in writing.
Example: Typical Conversion Scenario – 2,000 Users Moving from ECC
Imagine a company with 2,000 SAP ECC users migrating to S/4HANA. Here’s how a well-negotiated conversion might look:
- Current State: 2,000 ECC Named Users (e.g. 1,200 Professional, 800 Limited). The company pays $X in annual maintenance for these.
- SAP’s Initial S/4 Proposal: SAP suggests converting this to 1,300 FUEs in S/4HANA Cloud (their calculation based on assumed user roles) at a list price of $Y per year. They also size a HANA instance at 4 TB of memory for the new system.
- Negotiation Actions: The CIO’s team analyzes actual usage. They discover many “Professional” ECC users are light users who could be licensed as lower-tier in S/4. After re-mapping roles, they only need 1,000 FUEs – eliminating 300 excess FUEs from SAP’s quote. They also determine the HANA database can be sized to 2.5 TB with data archiving, instead of 4 TB. They negotiate conversion credits worth 70% of their ECC license value, effectively reducing the cost of those 1,000 FUEs. Additionally, they secure a dual-use grace period: SAP agrees that for 6 months during cutover, they will not charge ECC maintenance while S/4 is ramping up (no double pay).
- Outcome: The final contract is right-sized to actual needs and past investments. The organization avoids paying for hundreds of unnecessary FUEs and excessive HANA capacity, saving millions. They receive credit for legacy licenses and don’t pay overlapping support. The CIO can report to the board that the S/4HANA licensing deal leverages the company’s existing assets and includes safeguards for future flexibility.
(The above scenario illustrates the savings available through diligent license mapping and negotiation – a real-world case of turning a $Y million proposal into a much leaner deal by challenging assumptions.)
Governance Notes
Even after signing the deal, CIOs should enforce strong governance around SAP licenses:
- Cross-Functional Oversight: Assign license management to a team that includes Procurement, IT Asset Management, and Finance – not just IT alone. This ensures commercial scrutiny continues through the migration.
- Contract Flexibility Clauses: Regularly review your contract for any flexibility you fought for – true-down rights, co-termination of contracts, annual re-sizing options. Make sure those clauses are adhered to and prepare to exercise them when eligible.
- Internal Audits: Run quarterly internal license compliance checks during the transition (and annually thereafter). Verify user counts, usage levels, and indirect access. Staying clean and knowing your status will prevent problems if SAP comes knocking or when true-up time comes. Proactive compliance is your early warning system to adjust before costs escalate.
Finally, always document any agreements with SAP (no verbal understandings!) and track them. The individuals who negotiated the deal might move on – you want a clear record for those who inherit the contract.
5 Executive Takeaways for S/4HANA Licensing Decisions
- Never sign SAP’s first proposal – Treat it as an opening bid. Do your homework, build your own licensing model, and counter with what works for your business.
- Lock in pricing for 3–5 years and cap the renewals – Don’t get lured by a great first-year price that can shoot up later. Fix your costs and limit increases (e.g. max 3% annually).
- Independently verify all the numbers – Don’t take SAP’s word on FUE counts or HANA sizing. Map out your users and system needs yourself (or with a third-party expert) to avoid overestimation.
- Secure your conversion credits in writing – Ensure any value from your existing ECC licenses is formally credited in the contract. Verbal promises or “we’ll take care of you later” aren’t good enough.
- Stay in control of compliance – Don’t wait for SAP to audit. Implement your own license usage checks and clean-ups before and during the migration. Catch issues early so you’re never in a weak position if SAP raises a compliance question.
By keeping these takeaways front and center, CIOs and CFOs can enter an S/4HANA migration with eyes wide open and come out the other side with a modern ERP without breaking the bank or losing control of the relationship with SAP.
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