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SAP License Optimization

SAP Licensing Services
Optimize your SAP license investments

Negotiating million-dollar SAP licensing contracts is not your day job, but it is theirs! Make sure you prepare to get it right.

As an SAP customer, you may be feeling a growing pressure to migrate your ERP systems to cloud platforms. And optimizing SAP purchases, contract renewals and licensing can be complex and it varies significantly based on each customer's unique present and future technical and business needs. Nonetheless, there are specific measures you can take before and during the negotiations with SAP to minimize the chance of overspending.

In order to stay in control of your licensing and migrate effectively to the cloud, you need a thorough plan and transition model in order to avoid large, unnecessary plus expenditure in your IT budget.

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The complexity of Licensing and Contracting

SAP Licensing and Contracting requires focus

Companies are still just beginning to navigate cloud migration, but the cloud continues to gain momentum. Utilizing our established methods and specialized tools, we can help you secure the most cost-effective and compliant license package as an SAP client. This will include a S/4HANA-compatible role framework and assistance during negotiations. The end result will equip your organization with the insights you need.

Highlights and what you can expect from LicenseQ
  • License assignment reflects actual usage
  • Measurement of digital access documents
  • Screened & cleaned SAP roles
  • Up-to-date compliance status
  • Controlled costs and discounts
  • Data-driven decision making

Our independence is your tactical benefit
We support you with all the key steps before and during the S/4 HANA transition or renewal in order to reduce costs, risk and time in both the short and long term. Our price Benchmark Analysis, License and Contract Optimization and Software License Audit Services generally deliver substantial cost savings /avoidance for SAP’s Enterprise (Global) clients.

Please reach out to us via the button below with questions regarding your specific business case or generic questions. We will come back to you as soon as we can.

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SAP Licensing explained: Everything you need to know

SAP licensing explained by LicenseQ

What is SAP?

SAP stands for Systems, Applications and Products in Data Processing. It is one of the world’s leading producers of software for the management of business processes. The company’s integrated applications connect all parts of a business into an intelligent suite on a fully digital platform, thereby replacing the process-driven, legacy platform.

The company is especially known for its ERP (Enterprise Resource Planning) software, which is used by organizations of all sizes and industries to manage their business processes in a unified system. SAP is a traditional software vendor, but with SAP S/4HANA take ERP to the next level by using the power of in-memory and cloud computing to process vast amounts of data and to support advanced technologies such as artificial intelligence (AI) and machine learning.

5 Most important SAP Licensing & Contracting tips

SAP has many different user types, each with its own set of permissions. The price difference between a professional user license, which grants almost unlimited access, and a basic employee self-service (ESS) user license is significant.

By monitoring employee activity and matching it to the appropriate user license type, SAP customers can ensure compliance without overpaying for unused access.

In April 2018, SAP launched a new pricing model to address increasing concerns about indirect access. The company also announced major organizational and procedural changes to its software license audits. For many customers, this was a step towards transparency, but only if the changes are fully understood.

SAP’s current pricing model for indirect access licenses is based on the number of system-generated documents that are created through third-party access. This is a more granular approach than the previous model, which was based on the number of users who had indirect access to SAP.

An indirect access license is required whenever a custom or third-party application accesses SAP programmatically. For example, if organizations integrate Salesforce.com CRM with SAP, an indirect access license is necessary. A custom application designed to automate processes or integrate external data also requires this type of license. In many organizations, integrations may exist without the knowledge of the system administrator. However, if this situation is discovered during a license audit, it could result in financial penalties and even legal action. Organizations should have a proactive system in place to identify potential indirect access situations and ensure that their licensing is compliant.

SAP engines, also known as packages, are additional products that organizations must purchase separately from named user licenses. Vendors typically price engines based on a distinct metric, such as the number of employees in an organization or the number of invoices processed.

It is important to be aware of potential pitfalls when licensing SAP engines, such as the fact that SAP audits for HANA database license compliance based on peak usage for a trailing 12-month period. Organizations that exceed their license threshold even once during that time may be subject to corrective action from SAP. All organizations running SAP’s flagship ERP software should carefully manage their SAP licenses to avoid additional costs and potential problems. By proactively managing user activity, many organizations can avoid additional license costs. Other organizations may discover potential pitfalls and can address licensing gaps before they turn into bigger problems.

It is never too early to review your SAP licensing and subscriptions for optimization opportunities, ideally 6 to 12 months before they expire. This will help you avoid internal time pressure and avoid overpaying for SKUs that are no longer the best fit for your needs.

A great way to eliminate overpaying for SAP licenses and subscriptions is to regularly perform a license and subscription optimization across your SAP estate. A License Position Assessment can provide valuable insights into what you actually use versus what you “own” and any gaps between the two. In some cases, customers may find that they can reduce costs by eliminating unused licenses or subscriptions, or by reallocating license currency to other areas.

It is easy to focus on initial investment costs, but it is also critical to understand and negotiate the longer-term software costs. This is especially true if you opt for a cloud or SaaS deployment of S4/HANA. Long-term costs, accelerators, and usage fees should be fully understood. We can help you built the business case required to successfully negotiate long term benefits for your organization.

What are the difficulties of licensing SAP?

SAP licensing is complex due to the variety of options and flexible models. SAP software encompasses various modules that cover different aspects of business management – thousands of products, more than 20+ user license types and 100 engine metrics.

Businesses must understand the different software, license types, pricing, and deployment options. They must also track license usage to ensure compliance and avoid unnecessary costs. SAP’s system measurement tools, which are designed to show license consumption, are not helpful for optimizing license selection or saving costs. As a result, many companies struggle to match their license inventory to their actual needs, often leading to over-licensing and excessive spending.

Additionally, SAP licensing involves indirect and digital access, which can add complexity. Indirect access refers to using SAP software through third-party applications, while digital access refers to using SAP software to access digital content. Both can lead to additional licensing costs if you are unaware of these metrics.

What products does SAP offer?

SAP offers a wide range of software products for businesses of all sizes and industries. Most of these products require a license to use.

Some of the most popular SAP products that require a license include:

  • SAP S/4HANA (also called SAP Cloud Service): An intelligent ERP system that uses in-memory technology to process vast amounts of data and support advanced technologies such as artificial intelligence (AI) and machine learning.
  • SAP ERP: A software suite that includes financials, logistics, human resources, and other modules.
  • SAP Business One: A business management software designed for small and medium-sized enterprises (SMEs).
  • SAP SuccessFactors: A cloud-based human capital management (HCM) system that helps organizations manage their workforce.
  • SAP Ariba: A cloud-based procurement platform that helps organizations manage their spend and suppliers.

Please note that licensing requirements may vary depending on the specific product and usage scenario. It’s always best to consult with a qualified SAP licensing expert to ensure that you are in compliance with SAP’s licensing policies.

How to license SAP - the basics

SAP licensing has three main components:

1. Products

Software you require to meet your business needs. Think of:

- Package license
- Document-based license
- Named user license
- Other cost items

2. Deployment

How do you want to deploy the solutions? Possible options:

- On-premises
- SAP public cloud
- SAP Private cloud (hosted)
- Own private cloud
- Hyperscaler

3. License model

SAP offers multiple models to suit different needs, like:

- Perpetual
- Subscription
- Unlimited
- Single metric
- Consumption-based

  • 1. Product - license types

Package Licenses are based on the number of users or systems accessing SAP software. They are modular and can be combined in various ways to meet the specific needs of a business. They are related to the software functionality that a business requires. For instance, a company may need a package license for SAP’s financial accounting module, another for its sales and distribution module, for manufacturing and supply chain, spend management, etc.

Named user licenses are designed for specific roles within an organization and are associated with the individuals who use the software. Each SAP user within a business must have a Named User License. SAP offers a variety of Named User Licenses, including licenses for developers, professionals, limited professionals, and employees. These licenses make up the biggest slice of the total cost of the SAP contract.

Generally speaking, the more functionality, the more expensive the license. You should always make sure that you have assigned the correct licenses to the users of the SAP products. This is imperative, because if a user has not been assigned a license and your licenses are being audited by SAP, then they will automatically assign the most expensive license to this user (the Professional license). As SAP offers many alternative license types, make sure to purchase one that reflects your organization’s usage needs.

Types of named user licenses:

  • Developer: Allows users to create custom features for SAP systems using development tools.
  • Professional: Allows users to manage and administer SAP systems, and to perform all operational tasks.
  • Limited Professional: Allows users to perform specific operational tasks or well-defined functionality that must be approved by SAP.
  • Employee: Allows users to access reports and information for their own use, including documentation related to their job role.
  • Employee Self-Service (ESS): Allows users to perform self-service tasks, such as recording their time and attendance in HR.
  • Worker User: Allows users to perform tasks such as confirming production orders, entering production data, and submitting purchase requisitions.
  • Logistics User: Allows users to manage transportation and warehousing.
  • Management Self-Service User (MSS): Allows users to perform tasks such as requesting administrative changes to HCM processes, creating requisitions, and evaluating candidates.
  • Read Only: Allows users to view data in SAP systems, but not to edit it.
  • Service User: Allows SAP systems to communicate with each other and with third-party systems.

The ERP core license is a type of Named User License that is required to use SAP’s basic functionalities in the ERP software suite. It is associated with the individuals who use the software and is typically priced based on the number of users. The ERP core license is one of the most commonly used license models for SAP ERP software.

Other Cost items

Besides the Named user licenses, SAP customers also pay for:

  • Engine Usage: This refers to the use of SAP’s software engine, which is the core component of all SAP products. Engine usage is typically charged based on the number of users or systems accessing SAP software.
  • Standard Packages: These are pre-defined packages that include specific functionality, such as contract mappings, payrolls used, etc. Standard packages are typically priced based on the number of users or systems accessing the package.
  • Special Packages: These are custom packages that include functionality that is not included in SAP’s standard packages. Special packages are typically priced based on a form of payment agreed with SAP.
  • Indirect Access: This refers to the use of SAP software by third-party applications or custom applications designed to automate processes or integrate external data. Indirect access requires a separate license and is typically priced based on the number of system-generated documents that are created through third-party access. It can lead to additional licensing costs, as these interactions are considered usage under SAP’s licensing model. For example, if a business uses a third-party application to extract data from its SAP system for reporting purposes, this would be considered indirect access and could incur additional licensing costs.
  • Digital Access: This refers to access via third party, Internet of Things (IoT), bots, and/or other digital access that can be licensed based on transactions/documents processed by the system itself. Digital access requires a separate license and is typically priced based on the number of documents processed by SAP software.

  • 2. Deployment - how to deploy SAP
Besides selecting your required software and named user licenses, it is important to think about how and where you want to deploy the services. One of the key questions to ask yourself is, do you want to own and manage the hardware and software yourself, or do you want to outsource management and deployment to someone else? SAP offers clients multiple deployment options, which is good but also makes choosing complex. Three main deployment options are: on-premises, hosted private cloud and public cloud.

In addition to the named deployment options, clients can sign a single contract with SAP that includes support, application management, and hosting for HANA Enterprise Cloud (HEC).

What are the SAP deployment options?

Each deployment method has its own advantages and disadvantages, and the best choice for a business will depend on its specific needs and circumstances.

On-premises

Involves installing and running SAP software on servers located in the business's own facilities. This gives the business complete control over its SAP system, including the hardware, software, and data. However, it also requires the business to have the IT infrastructure and expertise to manage and maintain the system.

Hosted private cloud

Involves running SAP software on servers located in a private cloud, which is hosted and managed by a third-party provider. This deployment method provides businesses with the benefits of cloud computing, such as scalability and cost efficiency, while maintaining high control and security over their SAP system.

Public cloud

Involves running SAP software on servers in a public cloud, which is shared with other businesses and managed by a third-party provider. This deployment method provides businesses with the benefits of cloud computing, such as scalability and cost efficiency, but with less control and security over their SAP system compared to a private cloud deployment.

When choosing a SAP deployment method, there are several factors to consider, including:

  • Control and security: Businesses that need a high level of control and security over their SAP system may want to consider on-premises deployment or hosted private cloud deployment. Businesses that are willing to sacrifice some control and security in favor of scalability and cost efficiency may want to consider public cloud deployment.
  • Budget: On-premises deployment can be the most expensive deployment option, as businesses need to invest in their own hardware and software. Hosted private cloud deployment is typically less expensive than on-premises deployment, but more expensive than public cloud deployment. Public cloud deployment is the least expensive deployment option, but businesses may incur additional costs for indirect access.
  • IT expertise: On-premises deployment requires businesses to have the IT infrastructure and expertise to manage and maintain their SAP system. Hosted private cloud deployment and public cloud deployment offload some of the IT burden to the third-party provider, but businesses may still need some IT expertise to manage their SAP system.

Additional factors to consider:

  • Software version: Do we need the full functionality of SAP software, or can we use the simpler public cloud version?
  • Customization: Can we live with packaged SAP software, or do we need to make extensive customizations?
  • Licensing: Do we want to subscribe to SAP licenses (pure OPEX), or do we want to pay a CAPEX fee for a perpetual license?
  • Contract: Do we prefer an all-in-one contract with SAP managing everything, or do we want to control and manage the individual components ourselves?
  • Service levels: Do we need custom service levels, or can we live with SAP’s standard service levels?

  • 3. License models - what licensing models does SAP offer
Now that we have discussed what and where to license, it is important to understand how to license. There are multiple ways you can choose to license your software, we will list the most common ones below:

Perpetual Licensing

This is a traditional licensing model where customers purchase a perpetual license to use SAP software. The license is valid indefinitely, and customers pay a one-time fee for the license. Customers also have the option to purchase maintenance and support services for an additional fee.

Subscription Licensing

This licensing model allows customers to use SAP software for a specified period of time, typically one year. Customers pay an annual fee for the license, which includes maintenance and support services. At the end of the subscription period, customers have the option to renew their subscription or discontinue use of the software.

Consumption-Based Licensing

This licensing model allows customers to pay for SAP software based on their actual usage. Customers are charged based on the number of transactions or documents processed by the system. This model is designed to be more flexible and cost-effective than traditional licensing models.

Other SAP licensing models

To complicate matters even further, there are some other SAP models to consider, such as the Unlimited licensing option (UDD) for a specific set of products or your entire contract. A customer agrees a price and yearly maintenance model for any quantity of SAP software – mainly limited to on-prem products – for a limited time. Another option to license a specific set of products and install any quantity based on agreeing a price for a single metric, for example number of users or revenue. If the number of users grow, the SAP costs also grow proportionally.
SAP S/4 Hana

What is SAP S/4Hana?

SAP S/4HANA is the current hero offering of SAP to which they want to migrate most of their customers. It is an intelligent ERP system that uses in-memory technology to process vast amounts of data and support advanced technologies such as artificial intelligence (AI) and machine learning. It is the successor to SAP’s ERP software suite, which has been the global standard for enterprise resource planning (ERP) software for many years.

SAP states it has already moved around 10,000 customers worldwide to this platform, which they hope to increase exponentially year over year. SAP S/4HANA can be deployed on-premises, in the cloud, or through a hybrid model.

What are the benefits of S/4Hana?

According to SAP, their customers should consider moving to SAP S/4HANA for several reasons.
  • First, SAP S/4HANA provides a more modern and streamlined user experience, with a simplified data model and a more intuitive interface.
  • Second, SAP S/4HANA is designed to be more flexible and scalable than its predecessor, with the ability to run on-premises, in the cloud, or in a hybrid environment.
  • Third, SAP S/4HANA leverages in-memory technology to process vast amounts of data in real-time, enabling faster decision-making and more accurate insights.
  • Finally, SAP S/4HANA supports advanced technologies such as AI and machine learning, which can help organizations automate processes and improve efficiency.

How to migrate to S/4HANA?

Are you currently using SAP products? If so, the move to S/4HANA can be quite confusing. There are three main ways to go about this:
  1. New implementation: Customers migrating from a non-SAP legacy system or from an SAP ERP system and implementing a fresh system that requires an initial data load. In this scenario, the SAP S/4HANA system is implemented, and master and transactional data are migrated from the legacy system.
  2. System conversion: This is for customers who want to change their current SAP ERP system to SAP S/4HANA. Your current SAP systems move to the new SAP S/4HANA model.
  3. Selective data transition: for customers who want to consolidate their landscape or carve out selected entities (such as a company code) or processes into a single SAP S/4HANA system.

Because of the complexity of the current (legacy) SAP environments, the many bespoke/customized implementations and/or the lack of cleanliness in your SAP data make this a very challenging move (unless you will try and do a new implementation, which is usually not the recommended approach. Doing another inventory of your ERP requirements against the S/4HANA modules will be required to do a correct implementation.

Finally, for a successful implementation, you should think about 1) your roadmap, 2) the future of your IT infrastructure, 3) the type of governance you require.

As you can see, moving to SAP S/4HANA is a complex process that requires careful planning and execution. It’s important to work with qualified licensing experts, such as LicenseQ, to ensure a successful migration.