SAP Licensing Fundamentals

SAP Licensing

• SAP licensing involves Named User and Package licenses.
• Costs depend on user types and module metrics.
• Indirect access requires careful compliance.
• Use SAP tools to audit licensing regularly.
• Rightsizing licenses helps control costs.

Navigating SAP’s licensing can be complex. Whether you’re a new customer or an existing SAP user, understanding the structure and nuances of SAP’s licensing model is essential to ensure compliance while managing costs.

This guide will provide a comprehensive overview of SAP licensing, key considerations, and best practices to help your business manage licensing effectively.

SAP Licensing: The Basics

SAP offers a range of products and solutions for enterprises, which means the licensing structure is vast. The core elements of SAP licensing involve:

• Named User Licensing: This license is required for individuals who access the SAP environment. SAP defines different categories, such as Professional Users, Limited Users, and Developer Users, each with varying access rights and costs.
• Package (Engine) Licensing: This is license-based on the specific capabilities or features of SAP products, such as Financial Accounting, CRM, or Supply Chain Management. Costs are often based on metrics like the number of orders processed, sales volume, or number of system users.

Key Points to Note:

• SAP licensing consists of User Licenses and Package Licenses.
• User Licenses are typically required for anyone directly accessing the system.
• Package Licenses are driven by usage metrics, which means costs can vary significantly over time.

Named User Licensing: What You Need to Know

Named User Licenses are based on the type of user and their intended activity within the SAP environment. Here’s a breakdown:

• Professional Users: This is the most extensive user license. Professional Users have full read and write access across all licensed SAP environments. This type of license is ideal for administrators or super users.
• Limited Professional Users: Limited access licenses are less costly than professional user licenses and are intended for users who need reading and some transactional capabilities but not complete access.
• Employee Self-Service (ESS): These licenses are for employees who use SAP for personal purposes, like viewing payslips or submitting leave requests. ESS licenses are much more affordable than other user licenses.

Example: Suppose a company has 1,000 employees. Not all of these employees will need full Professional licenses—most may only need ESS licenses for occasional access, significantly lowering the licensing cost.

Package Licensing: Engine-Based Approach

Package licensing, also known as engine licensing, is one of the more challenging aspects of SAP’s model. It covers SAP modules based on resource consumption or usage metrics, such as:

• Revenue-Based Licensing: Modules like Sales and Distribution (SD) are often priced based on annual revenue or sales orders processed.
• Employee-Based Licensing: SAP HCM (Human Capital Management) may use metrics based on the number of employees supported by the system.
• Transaction-Based Licensing: Licenses like SAP S/4HANA Finance can be based on the number of transactions processed, making it crucial for companies to accurately evaluate historical data to estimate future costs.

Challenge Example: Suppose a company’s sales volume fluctuates throughout the year. This could result in unexpected module license costs using revenue as a pricing metric.

Indirect Access Licensing: The Critical Challenge

One of the most controversial aspects of SAP licensing is Indirect Access. Indirect Access refers to situations where third-party applications or even internal custom-built tools interact with SAP data without directly logging into the SAP system.

Example: Suppose your CRM tool is linked to SAP, and data transfers automatically occur between the systems. Technically, this is considered indirect access, and SAP expects licenses for users or applications accessing SAP data this way.

How to Address Indirect Access:

• Audit Data Flows: Identify all non-SAP applications interfacing with your SAP environment.
• Understand the Risks: SAP has been known to impose significant penalties for unlicensed indirect access, so proactively ensure compliance.
• Consider the Digital Access Licensing Model: SAP recently introduced the Digital Access model to simplify licensing for indirect scenarios. This model charges based on document usage rather than users. Evaluate if this model makes more sense for your needs.

Cloud vs. On-Premises SAP Licensing

SAP offers both On-Premises and Cloud Licensing. It’s important to understand the differences to make informed decisions:

On-Premises Licensing

• Perpetual Licenses: These licenses are purchased upfront and offer long-term use of SAP software.
• Maintenance Fees: Annual support and maintenance fees are typically around 20% of the initial licensing cost.
• Customization: On-premises licensing gives companies greater control over customization and integration.

Cloud Licensing

• Subscription Model: SAP’s cloud offering is based on a subscription pricing model, typically paid annually or monthly.
• Scalability: Cloud licenses are more flexible, allowing you to scale up or down as needed.
• Included Maintenance: Unlike on-premises, cloud licenses usually include support and maintenance, which can simplify budgeting.

License Management Best Practices

Managing SAP licenses effectively is crucial to avoid unnecessary costs and ensure compliance.

Below are key strategies for successful SAP license management:

1. Regular Audits and Self-Assessment

• Perform Regular Internal Audits: Conduct regular internal audits to ensure licenses align with usage patterns. Use tools to monitor SAP usage and assess license assignment.
• SAP License Administration Workbench (LAW): Use this SAP-provided tool to perform system-wide analysis of licensing data and stay on top of compliance.

2. Rightsizing Your Licenses

• User Classification: Not all users require the same level of access. Regularly classify users according to their usage (e.g., Professional User, ESS).
• Identify Dormant Users: Dormant or infrequent users may have a Professional license when a Limited license would suffice. Revoking licenses from these users and reassigning them appropriately can lead to significant cost savings.

3. Work with SAP Licensing Specialists

• Engage Third-Party Licensing Experts: SAP licensing experts can provide insights into the fine print of your contracts, assess opportunities to save on costs, and even assist in negotiations.
• Leverage SAP Tools: Utilize tools like SAP Solution Manager to get insights into utilization and application use.

4. Negotiation Tactics

• Contract Flexibility: Push for flexibility during contract negotiations. If your company’s workforce or usage might expand or contract, ensure your contract terms allow these changes.
• Incentives for Cloud Transition: SAP often incentivizes companies to migrate from on-premises to the cloud. If it fits your long-term goals, explore these possibilities to leverage better pricing.

SAP License Audits

SAP conducts license audits to ensure compliance. SAP may request data to determine whether your usage matches your licensed entitlements.

How to Prepare for an SAP Audit

• Understand the Scope: SAP will specify the scope of the audit. Ensure you have a clear understanding of what’s included.
• Data Accuracy: Conduct an internal review before providing data and ensure that all user assignments and engine metrics are current.
• Engage a Licensing Specialist: During audits, having a specialist on your side can help you present your data in the best light, potentially minimizing penalties.

Common Audit Triggers:

• Significant Usage Increase: A noticeable rise in SAP usage can prompt an audit.
• Suspicious Indirect Access: An audit might follow if SAP suspects external systems are accessing its software without licenses.

Common SAP Licensing Challenges and How to Address Them

1. Misaligned License Types

Problem: Employees often have higher licenses than needed.

Solution: Conduct periodic reviews of user activity to match users with the correct license type.

2. Compliance with Indirect Access

Problem: Third-party tools accessing SAP data without direct licenses can lead to compliance issues.

Solution: Evaluate the Digital Access licensing option and determine if it offers a more cost-effective solution.

3. Over-Deployment of Engine Licenses

Problem: Businesses may unknowingly breach licensing terms when usage metrics like orders or employee counts exceed thresholds.

Solution: Track usage metrics diligently and engage SAP to discuss scaling licenses when thresholds approach.

Strategies to Minimize SAP Licensing Costs

1. Optimize License Allocation

• User Analysis: Run monthly or quarterly reports to determine if users have excess capacity or if some have been inactive for extended periods.
• Reassign and Downgrade Licenses: Reassign licenses from inactive users and downgrade users who need less functionality.

2. Leverage SAP Licensing Metrics

• Annual True-Up Periods: SAP often allows a true-up period where licensing adjustments can be made without penalties. Make full use of these windows.
• Negotiate Engine Metrics: If your metrics are variable, such as fluctuating sales orders, negotiate metrics-based licenses to avoid excess costs during peak periods.

SAP S/4HANA Licensing: Key Considerations

With SAP’s push towards S/4HANA, understanding its unique licensing is crucial:

• User Licenses Remain: SAP S/4HANA requires similar Named User Licenses. Based on user activities, you may need professional or limited professional licenses.
• Simplified Engine Licensing: S/4HANA attempts to simplify package licensing with more unified bundles, though indirect access and complex metrics remain concerns.
• Migration Considerations: Companies migrating from ECC to S/4HANA often find their licenses need recalibration. Review the transition mapping from ECC to S/4HANA licenses to avoid unnecessary upgrades.

How to Handle SAP During Contract Negotiations

SAP contracts are often multi-year and contain a range of nuanced terms. Here’s how to ensure the best outcome:

• Focus on Transparency: Ensure the contract outlines licensing types, costs, and future adjustment conditions.
• Ask for Flexibility: Push for add-ons that let you downgrade licenses without financial penalties, especially for variable metrics like engine usage.
• Get Future-Proofing Clauses: Include clauses that allow you to leverage future licensing models or discounts, especially if SAP introduces new products or offers.

Key Takeaways for Businesses

1. SAP Licensing is Complex: Between Named Users, Package Licensing, and newer models like Digital Access, it’s important to fully understand your needs to align licenses appropriately.
2. Indirect Access is a Key Risk: Identify all data flows, both direct and indirect, to avoid compliance penalties.
3. Optimize License Management Regularly: Regular reviews, leveraging SAM tools, and rightsizing user licenses are essential to keep costs under control.
4. Negotiation Can Yield Cost Savings: During contract renewal or true-up periods, always negotiate terms, engine metrics, and migration incentives.
5. Engage Experts When Needed: Working with SAP licensing specialists can help you navigate complexities, avoid costly mistakes, and effectively prepare for audits.

Remember: Effective SAP license management requires understanding the structure and proactively monitoring and negotiating. Stay vigilant about your entitlements and align them with your business needs to avoid surprises and optimize costs.

SAP Licensing FAQ

What is SAP licensing? SAP licensing is a model that includes Named User Licenses and Package Licenses, covering user access and module usage.

How are SAP user licenses classified? User licenses include Professional, Limited Professional, and Employee Self-Service (ESS), each with specific access rights and costs.

What is Package Licensing in SAP? Package or engine licensing is based on usage metrics like revenue, employee count, or transactions processed.

What is indirect access in SAP licensing? Indirect access occurs when third-party applications access SAP data without directly logging in, requiring specific licenses.

How can I avoid SAP indirect access issues? Audit your data flows and consider SAP’s Digital Access model to address indirect access licensing more transparently.

What’s the difference between cloud and on-premises SAP licenses? Cloud licenses are subscription-based, while on-premises are perpetual, requiring upfront payment and annual maintenance.

Why should I conduct regular SAP license audits? Regular audits help align licenses with usage and identify any over-licensing or compliance issues before official SAP audits.

How can I optimize SAP licensing costs? To reduce costs, rightsize user licenses based on actual activity, identify dormant users, and reassess engine metrics regularly.

What is the SAP License Administration Workbench (LAW)? LAW is a tool for assessing licensing across SAP systems, providing an overview of compliance and potential gaps.

How does SAP pricing work for cloud licenses? SAP cloud licenses are subscription-based, with costs tied to the number of users and services needed, often paid monthly or annually.

What’s the best strategy for negotiating SAP contracts? Negotiate for contract flexibility, scalability options, and cloud transition incentives to reduce long-term costs.

How long does an SAP license audit take? Depending on the size and complexity of your SAP landscape, it can take several weeks to months.

Can I reassign SAP licenses between users? Yes, licenses can often be reassigned to different users, provided usage aligns with the license terms, helping manage costs.

What happens if I’m found non-compliant in an SAP audit? Non-compliance can lead to financial penalties, retroactive licensing charges, or even service limitations imposed by SAP.

Do I need external help with SAP licensing? Hiring a licensing specialist can be beneficial, especially for managing indirect access risks, audits, and contract negotiations.