SAP License Negotiation is
- Understand your organization’s SAP usage and requirements.
- Stay updated on SAP’s licensing policies and market trends.
- Set clear negotiation objectives, such as cost savings or additional functionality.
- Assemble a knowledgeable negotiation team.
- Use data to support your arguments.
- Communicate openly and transparently with SAP.
- Seek expert advice to navigate complexities.
Read our Negotiation with SAP – CIO Playbook.
SAP License Negotiation
Negotiating with SAP for licenses and contracts is a high-stakes endeavor that can significantly impact your IT budget and your organization’s flexibility for years to come.
Unlike buying an off-the-shelf product, SAP deals involve intricate license metrics, bundled offerings, maintenance terms, and future considerations, such as migration rights to S/4HANA.
As a SAM manager or licensing professional, approaching SAP license negotiations methodically and strategically can save millions of dollars and ensure you get a fair deal.
On the other hand, a poorly negotiated contract might leave you with shelfware (unused software you’ve paid for), restrictive terms, or exposure to compliance risks.
This article outlines best practices for negotiating SAP licenses, whether you are negotiating a new purchase, a contract renewal, or a true-up after an audit.
The tone here is advisory – think of this as your negotiation playbook to outmaneuver the SAP sales organization at its own game, achieving a win-win while fully protecting your interests.
Read SAP Contracts and Licensing: A Strategic Toolkit for Procurement Leaders.
Preparation: Know Thyself and SAP
Like any negotiation, success starts long before you get to the table.
- Assess Your Needs (Current and Future): Conduct a thorough analysis of the organization’s requirements. Which SAP products/modules do you truly need? How many users and of what types? What is your anticipated growth or project roadmap for the next 3-5 years? This helps you avoid buying “too much, too soon” (which becomes shelfware) and also ensures you negotiate for enough to cover upcoming expansions. For instance, if you plan to implement SAP SuccessFactors in a year, you might want to discuss it now rather than signing a separate contract later, which would allow you to leverage bundle discounts. Document your current usage (perhaps from recent internal audits), as that gives you a baseline. Also, identify any licenses you own but are not using (shelfware) – these could be exchanged or dropped for credit.
- Educate Yourself on SAP’s Offerings and Pricing: Understanding SAP’s pricing models and available options is crucial. SAP offers different license types, including perpetual vs. subscription, named user vs. concurrent, and cloud vs. on-premise. Know the list prices, but remember almost nobody pays list prices – discounts are expected, especially for large deals. If possible, gather benchmarking data: what percentage discount do companies of your size and industry typically receive? For new S/4HANA contracts, what incentives is SAP offering (e.g., conversion credits, free handover of unused ECC licenses)? Also, stay informed about SAP’s product strategy, such as SAP’s push to the cloud, RISE with SAP bundles, etc. If SAP has a strategic goal to increase cloud adoption, you might get a better deal by showing interest in cloud options. *Market knowledge is leveraged.
- Leverage Alternatives: One often overlooked tactic is considering (or at least researching) alternative solutions. While SAP may be deeply embedded, exploring other vendors for certain functionality (say Salesforce for CRM, or a third-party warehouse management system) can give you credible leverage. If SAP senses you have options, you’re in a stronger position. Even if you don’t intend to switch, knowing the competitive landscape (and pricing) means you can quantify the cost of going elsewhere. For example, if Oracle or Microsoft offer a competing product at 20% less, you can gently use that in negotiations, not as a threat but as a fact-based push for a better SAP price. Sometimes, simply mentioning that the board is also evaluating non-SAP solutions for a new project can prompt SAP to sharpen its pencil. However, be careful: make sure any such alternatives are real considerations; bluffing without backup can backfire if SAP calls it.
- Build Your Negotiation Team: Negotiating an SAP deal is not a solo activity. Assemble a cross-functional team:
- IT and Business Leads: to articulate the requirements and priorities (e.g., a Supply Chain VP to emphasize why a certain module is critical, or conversely, why some SAP component might not be needed).
- Procurement/Sourcing: Lead the commercial and contractual aspects, ensuring procurement best practices.
- Legal: to review contract terms (SAP’s contracts can be complex; legal can help with clauses on liability, audit rights, etc.).
- Technical SAP experts: (internal or external) who know how licenses are measured to avoid ambiguous terms.
- Executive Sponsor: Having a C-level executive (such as a CIO or CFO) involved can help escalate issues and signal to SAP that you have high-level backing, which SAP respects.
Each member should have a specific role: for example, the procurement member handles pricing discussions, the IT lead handles usage discussions, etc. Plan your communication: who speaks on what topic? A united, well-prepared team is hard for a vendor to divide and conquer.
- Determine Your Objectives and Limits: Before negotiation, set clear goals:
- What’s your target price or discount level? What contract terms are must-haves (e.g., price protections, flexibility to convert licenses, and an audit clause modification)? What are you willing to concede if needed (maybe a slightly longer contract term in exchange for a bigger discount)? And very importantly, what’s your walk-away point? Sometimes, you may decide that if SAP can’t meet terms, you will delay a purchase or seriously consider alternatives. Knowing this in advance prevents getting pressured into a bad deal.
Key Negotiation Considerations
When you’re at the table (or on calls) with SAP, keep these topics in focus:
License Types and Quantities
Ensure you’re negotiating for the right mix of licenses.
SAP will often propose bundles or specific compositions, but you should tailor them:
- Named Users: Ensure you have the correct number of each type. If unsure, it’s sometimes better to start slightly lower with an option to purchase more at the same discount later. Avoid overcommitting. Also, clarify definitions. For example, SAP defines user types (Professional, Functional, etc.) – get these in writing to avoid future contention. Document it if you negotiate a special user type or some test users for free.
- Engines (Package Licenses): Understand how they scale when negotiating engines. It might be wise to negotiate a price per unit for extra capacity. For example, if you license SAP Digital Access documents for 100,000 documents, negotiate the price for additional 10,000 increments now, so you have predictability if you grow. This is better than leaving it open and later buying at unknown prices. Also, if you’re unsure of the required metric (maybe you don’t know how many “widgets” you’ll process), consider an initial period true-up approach: e.g., pay for 1 year at a certain metric level, then true-up at year-end once you have actual figures, with a cap on cost. This is something you can negotiate – a kind of provisional license.
Pricing and Discounts
This is the heart of negotiation:
- Benchmark and Target: As mentioned, know what discount to aim for. SAP often gives bigger discounts on new licenses than on support renewal. It’s not unusual to see 50-70% discounts off list for large deals, but it varies. If SAP quotes a dollar figure, ask them to show it as a percentage off the list, to gauge where you stand.
- Bundle Deals: Take advantage of the bundle if buying multiple components. Perhaps SAP is more eager to sell certain products (like newer cloud offerings). You could use that: “We’ll consider adding SAP Analytics Cloud to our purchase if we get a better rate on the S/4HANA licenses.” Also, if you’re an existing customer, remind SAP of your current spend – they generally want to increase it. Still, you can position yourself to maintain or reduce spending if the new deal isn’t attractive (especially if you can shelf some old licenses). Trade-ins are possible: as Forrester noted, trading unused on-premises licenses for cloud subscriptions or other needed software can be a win-win. If you have shelfware (like licenses for a module you never implemented), ask SAP to credit the value towards something else rather than paying maintenance on them indefinitely.
- Maintenance and Support Fees: SAP traditionally charges a percentage, such as 22%, of net license fees annually for support. If you get a big discount on licenses, SAP sometimes calculates support based on the pre-discount price (pegged support). Negotiate that carefully – ensure support is a percentage of your pay, not the list price. Also, try to cap maintenance increases. SAP has been raising maintenance fees (e.g., 2024 saw increases due to inflation. See if you can lock maintenance at the current percentage for X years or cap the increase (some customers negotiate something like “maintenance fees won’t rise more than 3% annually”). If you’re considering third-party support (like Rimini Street) as leverage, you might even negotiate a re-entry clause (in case you leave SAP support and later return, so you don’t pay massive back-charges). This is advanced, but worth mentioning if it’s part of your strategy.
Usage Rights and Flexibility
- Reallocation and Transfers: Ensure the contract allows you to flexibly reassign licenses. If you downsize one part of the business and want to use those licenses elsewhere, you should be able to do so. Most SAP licenses are enterprise-wide, but if you have multiple affiliates, check that you can transfer them between each other. For user licenses, verify that a replacement can reuse the license if a user leaves. It usually can, but clarity matters. For package licenses, ask about upgrading or downgrading usage.
- Cloud vs On-Premise: If you’re negotiating cloud subscriptions (like SuccessFactors, Ariba, etc.), understand how those subscriptions can be adjusted. Cloud deals usually have terms, such as 3 years. Try to include a mid-term adjustment clause – e.g., after year 1, you can reduce or increase by 10% without penalty based on usage. SAP cloud can be less flexible, but it’s worth a shot. If you’re sticking with on-premises perpetual, consider negotiating conversion rights to the cloud later. RISE with SAP offers some conversion of existing licenses to cloud credits; get those terms in writing if relevant.
- Indirect/Digital Access Clauses: Indirect access is a biggie. If you adopt Digital Access licensing, ensure the contract clearly states the metrics and how documents will be counted during audits. Perhaps negotiate a cap or specific process for measuring (like only using the Passport too). If they stick to the old model, some customers even negotiate something like “if indirect use is found, the customer will first be given the option to purchase the appropriate licenses before SAP pursues any breach of contract remedies” – a softer landing. It might be hard to get, but clarity is key again. The license contract should ideally include the result of your indirect usage negotiation (e.g., “Customer to acquire digital access for 100,000 documents at X rate with a 90% DAAP discount applied”), so it’s settled.
- Future Tech and Modules: If SAP is known to be releasing something that could benefit you, consider negotiating “pilot rights” or options. For example, maybe you’re buying SAP ERP but want to try SAP’s Machine Learning add-on later. You could request a free trial period clause or be first in line for certain programs.
Maintenance and Renewal Terms
- Price Protection: Include caps on how much prices can increase at renewal or if you buy additional licenses later. Often called “price hold” – e.g., “the discount% % or per-unit price in this agreement will apply to additional license purchases of the same type for 2 years”. This prevents SAP from quoting you higher next time you need 100 more users. SAP might resist long holds, but even a year or two is helpful.
- Termination Rights: Check what happens if you want to terminate a license or subscription. Usually, perpetual licenses you own forever (no termination, but you can stop maintenance). For the cloud, check if there’s an early termination clause and any associated penalties. Getting flexibility here is tough, but raise it if it’s a concern.
- Audit Clause: While SAP likely won’t remove its audit rights, you can negotiate practical details. For example, add a line stating that audits will be conducted no more than once every X months, with Y days’ notice. Or both parties will mutually agree on the audit schedule. It’s about ensuring audits don’t become a constant distraction. Some clients also negotiate that certain records (maybe sensitive data) won’t be handed over, etc., but again, SAP’s standard audit clause is the norm. Still, you might get a concession if you had a contentious audit before.
Read Optimizing SAP Named User Licensing for Cost Savings.
Negotiation Tactics During Discussions
- Data-Driven Negotiation: Use your prepared data. For instance, if SAP says “you need 300 Professional licenses,” but your internal analysis suggests 250, present your case with usage statistics to back it up. This prevents overselling. Or if SAP quotes a number, ask for the breakdown and why – it engages them in justification, which you can counter with facts. Consider discrepancies between what you currently use and what they propose you buy. Remember Noel D’Costa’s anecdote: companies sometimes pay for thousands of users, but only half use the system. Don’t let that happen; challenge volumes with real usage patterns.
- Stay Cool on Deadlines: SAP sales reps often have quarterly or year-end targets and will push you to sign by a certain date with incentives (“This discount is only valid if you sign by Q4 end.”). Use this to your advantage, but don’t be rushed into a poor decision. The end of the quarter can yield great deals because SAP wants the sale recognized, but ensure all terms are thoroughly vetted. If you need more time, sometimes it’s better to miss the “extra 5% off” than sign a suboptimal contract. However, if you’re ready, the end of the year (especially SAP’s fiscal year-end in December) is a time when they may be more willing to agree to your terms more readily.
- Ask for Everything (within reason): During negotiation, put all your asks on the table, even if you think you might not get some. It sets the stage for you to expect a lot. You can always concede minor points later in exchange for ones you need. For example, ask for a higher discount than you need; they counter with a lower one. If you get a better audit clause, you “reluctantly” accept the slightly lower one. Classic negotiation is give-and-take. But always prioritize your must-haves so you know what to trade.
- Documentation of Commitments: If the SAP sales team makes promises (“Oh, you’ll be able to do X,” or “We typically allow Y”), kindly request that those be reflected in the contract or written in an official email. Verbal assurances mean nothing later. For instance, if they promise that you can repurpose unused ECC licenses after migrating to S/4, get that in writing with specifics.
- Keep an Eye on Future Costs: Don’t focus only on the upfront license cost. Consider the total cost of ownership, including maintenance over 5 years (which often exceeds the initial fee), potential consulting or upgrade needs, etc. Sometimes negotiating a slightly higher initial fee but locked maintenance rate can be smarter. Or, if you foresee needing more licenses later, you might consider agreeing to a modest bulk now at a discount rather than paying more later. Every case differs, but maintain a holistic view.
Read Cutting SAP Maintenance Costs: Negotiation Strategies for Support Contracts.
Example Scenario
To illustrate, let’s say you are negotiating a migration deal to S/4HANA:
- You currently have ECC with 500 users and some engines, such as WM and CRM. SAP offers a conversion deal: 500 S/4HANA Enterprise licenses at 50% off, plus an option to get 5 SAP Cloud Platform (BTP) entitlements. They also say you need to license Digital Access for docs.
- You come prepared: only 400 active users and 100 shelfware from ECC. You propose 400 licenses at 60% off, trading in the 100 unused ECC ones. You also ask that Digital Access be capped at, say, a certain count, with DAAP at 90%, and you want assurance that if more documents are needed later, you get the same 90% rate. You also mention that Oracle offered you a good deal on their ERP (even if it was just as leverage).
- After a back-and-forth, you settle on 450 S/4 licenses at around 55% off (they had insisted on more users, but you met halfway, not 500). SAP agrees to include a clause covering your first 1 million digital documents at the agreed price (the DAAP 90% off rate). Any additional documents within 3 years can also be purchased at this same rate. They also include a line allowing you to reassign up to 50 licenses to a SuccessFactors module if you adopt it, providing flexibility. You manage to cap maintenance at 19% (down from the standard 22%) by highlighting that you won’t need much support initially or might use third-party support.
- Importantly, you clarified the audit clause to align with this new digital access, so there is no double-dipping or unfairly counting users and documents. All of this is documented in the final order form and contract amendments.
Read Key SAP Contract Terms CIOs Must Negotiate (Indirect Access, Price Caps, Flexibility).
Recommendations
Concluding with some crisp recommendations for SAP license negotiations:
- Do Your Homework: Enter negotiations with a detailed understanding of your needs and usage. Quantify everything – know how many licenses and what type you need, so you don’t overbuy under pressure.
- Aim High (but Be Realistic): Set ambitious negotiation goals for discounts and terms, supported by benchmarks or alternate options. Don’t hesitate to ask for better pricing or terms – the worst SAP can say is no, and they’ll usually counter with something in between.
- Leverage Timing: If possible, align negotiations with SAP’s fiscal calendar. Year-end deals can be advantageous. But don’t let their timelines force a bad deal—be willing to pause if needed, as long as your business can wait.
- Total Value, Not Just Price: Negotiate the overall package – including maintenance rates, future flexibility (such as conversion rights), training credits, and additional services. A slightly higher discount means less if they jack up support next year; balance one-time and recurring costs.
- Clear Contract Language: Insist on clarity in the contract. If you negotiated special terms (such as swapping license types or specific indirect use coverage), ensure they are explicitly written. Ambiguity only helps the vendor later.
- Build Relationships, Not Adversaries: Maintaining a respectful and professional relationship with the SAP reps while being firm. They often will work with you more collaboratively if the tone is positive. Use phrases like “let’s find a win-win” or “we’re committed to SAP long-term, help us make this viable internally”. Salespeople might advocate for better terms within SAP if they see you as a long-term partner rather than a combative negotiator.
- Don’t Forget Legal Review: Some negotiators focus so much on price that they overlook the fine print in the contract. Have your legal team review clauses related to liability, warranties, data protection (especially for cloud services), audit rights, and other relevant terms. You might not change much of it, but you want no surprises.
- Review Final Agreements: After negotiation, double-check the final paperwork to ensure it aligns with your understanding. We’ve repeated this, but it’s that important. Make sure every concession and term is captured. If anything’s missing, push back before signing.
- Plan for Future Negotiations: View this negotiation as one chapter in an ongoing story. You will likely need to negotiate with SAP again (for additional licenses, renewals, and new products). So, keep notes on what worked and what didn’t, and maintain a good relationship with the account team. Also, structures help avoid being locked in too rigidly – for example, a 3-year renewal cycle might be better than a 5-year one, because technology and pricing change quickly.
- Use Expert Advisors if Needed: If the deal is large or complex, consider hiring a negotiation advisor or utilizing resources from groups like the SAP User Group (SUG), which often share negotiation tips.
In the end, successful SAP license negotiation requires a mix of analysis, strategy, and interpersonal skills. By being well-prepared and assertive, you can secure a contract that meets your organization’s needs without overspending.
Remember, SAP salespeople are highly trained negotiators, too. With the insights from this playbook, you’re equipped to negotiate effectively and achieve a favorable outcome that aligns with your goals.
Read Strategic Playbook: Negotiating SAP Contracts and Pricing Protections for CIOs.
FAQs
What is the first step in preparing for an SAP license negotiation? The first step is thoroughly understanding your organization’s SAP usage and requirements. This includes assessing current usage, identifying future needs, and understanding the different types of SAP licenses available.
Knowing the different types of SAP licenses is important. It helps you determine what best suits your organization’s needs. This ensures you are not overpaying for unnecessary licenses or under-licensing, which could lead to compliance issues.
How can staying up to date with SAP licensing policies benefit my negotiations? Staying informed about SAP’s licensing policies and any changes can help you adjust your negotiation strategy accordingly. This knowledge can also help you identify new opportunities for savings or better terms.
What are some key objectives to set before entering an SAP license negotiation? Key objectives might include cost savings, obtaining additional functionality, securing more flexible terms, and ensuring that the licenses align with future business needs.
Who should be on my negotiation team? Your negotiation team should include SAP experts, experienced negotiators, and legal advisors. Each member brings a unique skill set that can contribute to a successful negotiation outcome.
Why is data important in an SAP license negotiation? Data supports your negotiation arguments by providing concrete evidence of your SAP usage, needs, and trends. This information can help justify your requests and counter any pushback from SAP.
How can clear communication impact the negotiation process? Clear communication helps build trust and ensures that both parties understand each other’s needs and constraints. This transparency can lead to a more productive negotiation and a mutually beneficial agreement.
What role do SAP licensing experts play in the negotiation process? SAP licensing experts provide specialized knowledge and insights that can help you navigate the complexities of SAP’s licensing models. Their expertise can lead to better terms and avoid costly mistakes.
How do I determine the right number of licenses for my organization? Conduct a thorough audit of your current SAP usage and future needs. This will help you determine the exact number of licenses required, preventing over- or under-licensing.
What should I do if SAP’s initial offer doesn’t meet my expectations? Use your data and communicate your needs and constraints. Be prepared to negotiate by presenting alternatives and justifications for better terms.
Why is it important to have a clear understanding of compliance requirements? Understanding compliance requirements helps avoid penalties and ensures your organization adheres to SAP’s licensing rules. This knowledge can also strengthen your negotiation position.
What are some common pitfalls to avoid during SAP license negotiations? Common pitfalls include not understanding your requirements, failing to stay updated on licensing changes, neglecting to gather sufficient data, and not seeking expert advice.
How can I use market knowledge to my advantage in negotiations? Understanding market trends and pricing models allows you to benchmark SAP’s offers against industry standards, which can help you negotiate more effectively.
What should be included in the final SAP license agreement? The final agreement should clearly outline the types and quantities of licenses, pricing and discounts, usage rights and restrictions, maintenance and support terms, compliance and audit clauses, renewal terms, and termination rights.
Read about our SAP Contract Negotiation Service.
