S/4HANA Conversion Paths: Product Conversion
Introduction – Why Licensing Conversion is Central to S/4HANA Migration
An enterprise migrating from SAP ECC (the classic ERP) to S/4HANA must plan not only the technical upgrade but also a licensing transition.
SAP offers three distinct paths for converting existing licenses to S/4HANA: product conversion, contract conversion, and compatibility packs.
Each path carries strategic implications – the wrong choice can lock the business into higher long-term costs or unfavorable terms. Read our S/4HANA Licensing 2025 – The Executive Playbook.
Licensing conversion is therefore as critical as the technical cutover, and with SAP’s cloud-first push in full swing, organizations need a clear strategy to protect their interests and negotiating leverage.
Product Conversion for S/4HANA
In a product conversion, the company performs a one-for-one swap of existing ECC licenses into equivalent S/4HANA licenses.
The original contract framework remains in place, meaning all previously negotiated pricing and terms are retained under the S/4HANA environment.
Pros:
- Minimal disruption to existing agreements and budget planning – the maintenance cost baseline remains unchanged
- Preserves all legacy discounts, user license types, and special terms carried over from the ECC contract
- Enables a phased migration with parallel use rights (both ECC and S/4HANA can run concurrently during transition)
Cons:
- No flexibility to eliminate unused licenses – any shelfware from ECC stays on the books under S/4HANA
- Cannot gain new functionality beyond the current scope without purchasing additional licenses (only like-for-like conversions are allowed)
- Locks the enterprise into the legacy licensing model and metrics, which may not align with evolving business needs or SAP’s future offerings
Learn how to do the calculations, Full User Equivalent (FUE) & User Licensing Explained for S/4HANA.
Contract Conversion in SAP
In a contract conversion, the organization replaces its legacy ECC license contract with a completely new S/4HANA licensing agreement.
SAP often promotes this “start fresh” approac,h sometimes linking it with a RISE cloud subscription to move customers onto the latest pricing model, but it comes with significant trade-offs for the customer.
All existing licenses are returned to SAP in exchange for credits (the financial value of the legacy licenses) that offset the cost of a new S/4HANA license portfolio under updated terms and metrics.
Pros:
- Allows a flexible redesign of the entire license portfolio – the business can drop shelfware and acquire new licenses aligned to current needs
- Presents strong negotiation opportunities for better pricing; SAP may offer substantial credits or discounts to incentivize signing a new contract
- Simplifies the licensing landscape by consolidating into one modern contract, often updating user categories and metrics for easier compliance management
Cons:
- All legacy entitlements and negotiated protections are forfeited – the new S/4HANA contract uses standard (often less favorable) terms and definitions
- Higher risk of over-licensing; a fresh contract can lead to purchasing extra modules or capacity that turn into shelfware if not carefully justified
- Typically requires some incremental spending beyond the provided credits (SAP usually mandates an increase in contract value), resulting in higher long-term cost commitments.
Compatibility Packs Rules
Compatibility packs are temporary license extensions that allow certain legacy SAP ECC functionalities to continue running within an S/4HANA system.
They serve as a transitional bridge until S/4HANA provides equivalent native features, ensuring continuity for processes that haven’t been fully modernized. However, these entitlements are strictly time-bound.
Once the pre-defined expiration date arrives (for most packs, by the end of 2025), the organization would face a sudden loss of those usage rights and a compliance gap if it hasn’t transitioned to native S/4HANA solutions.
Comparing S/4HANA Conversion Paths
| Path | How It Works | Pros | Cons |
|---|---|---|---|
| Product Conversion | One-for-one license swap under existing contract | Simpler approach; preserves current structure and terms | Less flexibility (cannot reduce or change licenses) |
| Contract Conversion | New S/4HANA contract (full reset of legacy agreements) | Flexible portfolio redesign; potential for discounts/credits | Legacy entitlements lost; risk of new shelfware |
| Compatibility Packs | Temporary rights to use ECC functionality in S/4HANA | Smooth transition if S/4 lacks a feature initially | Time-limited usage; compliance risk at expiry |
Migration from Classic ERP to S/4HANA Licensing – Planning Steps
To prepare for the transition from classic ERP to S/4HANA licensing, organizations should follow several key steps:
- Inventory current ECC licenses and usage: Conduct a full audit of all existing SAP ERP entitlements and how they are being used. This establishes the baseline for what needs conversion or can be retired.
- Decide on product vs. contract conversion: Evaluate which approach aligns with the company’s strategy. A product conversion favors stability and continuity, whereas a contract conversion offers flexibility to reshape licenses (but with more change and potential cost).
- Track compatibility pack dependencies: Identify any business processes supported by S/4HANA compatibility packs. Develop a plan to replace or retrofit those functionalities before the packs expire to avoid disruption.
- Build a negotiation strategy: Engage SAP early with a well-defined negotiation plan. Aim to secure fair credit for existing investments, protect any critical usage rights from the old contract, and cap future costs (for example, by negotiating price protections or phased license growth terms).
For more insights, S/4HANA Conversion Paths: Product Conversion, Contract Conversion & Compatibility Packs.
Cost & Risk Considerations
- Product Conversion: Maintains a stable maintenance cost baseline (no immediate new license fees), but offers little flexibility to eliminate unused licenses or reduce spend.
- Contract Conversion: Provides the chance for significant upfront credits or discounts, yet often necessitates some incremental spend and can result in new shelfware if license needs are overestimated.
- Compatibility Packs: Delivers temporary cost relief by deferring certain upgrade or replacement investments, but may lead to hidden expenses once those packs expire (for instance, sudden licensing of replacement solutions or emergency project costs).
Checklist – S/4HANA Conversion Planning Actions
- Complete a full license inventory: Ensure all current ECC entitlements are cataloged and understood (including user licenses, engines, and add-ons).
- Map needs to S/4HANA products: Align the organization’s current and future business requirements with the appropriate S/4HANA software components and user types.
- Choose the optimal conversion path: Select the licensing conversion approach (product or contract conversion) that best fits the company’s risk profile, flexibility needs, and long-term roadmap.
- Monitor compatibility pack timelines: If using any compatibility packs, note their expiration dates and have plans to migrate those functions to native S/4HANA or alternate solutions in time.
- Negotiate favorable terms with SAP: Leverage the migration as an opportunity to negotiate credits for past investments, secure discounts on new licenses, and include protections (such as flexible terms or exit clauses) in the new agreement.
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