SAP Cost Optimization: The CFO Guide

Where SAP cost actually sits in the enterprise

SAP total cost of ownership has four components. The license fees paid initially or on subscription. The annual maintenance fees paid each year that the software remains in productive use. The internal cost of operating SAP, including people and infrastructure. The cost of system integrators and consultancies engaged for projects and managed service. For most Fortune 500 customers, the four together represent between 1 and 4 percent of revenue, with the license and maintenance line representing approximately 40 percent of the total.

The cost the CFO can address most directly is the license and maintenance line, because it is the line that follows from contract decisions, and contract decisions can be reopened. The other three lines follow from operating choices that are slower to change but ultimately also addressable. The framework in this guide concentrates on the license and maintenance line first, then moves into the operating cost. The detail is in our CFO guide white paper.

The five drivers of SAP cost optimization

Across more than 500 enterprise engagements we observe five drivers that consistently produce material savings when addressed in sequence. They are listed in order of leverage.

Named user rationalization

The single highest leverage activity is named user rationalization. Most customer estates carry between 20 and 40 percent over classification, where users are assigned a license category higher than their actual usage requires. Reclassification typically reduces the named user spend by 25 to 35 percent without changing user access. The mechanics are covered in our user misclassification guide.

License harvesting

The second highest leverage activity is harvesting unused licenses. Most customer estates carry between 10 and 25 percent fully unused user assignments, typically attached to former employees, contractors, or test accounts. Harvesting them frees license capacity that can be reallocated against growth without new purchase. See our license harvesting guide.

Indirect access remediation

The third driver is indirect access exposure. Most customer estates carry exposure that has not been priced into the contract. The exposure becomes an audit finding at the next audit. Addressing it ahead of the audit, through either reclassification or digital access conversion, removes the exposure at a fraction of the cost the audit would extract. The full framework is in our indirect access explainer.

Maintenance cost reduction strategies

Annual maintenance fees are typically 22 percent of net license value, applied each year for the life of the deployment. Over a 10 year horizon, maintenance accumulates to more than twice the original license investment. Maintenance reduction is therefore one of the highest leverage cost reduction levers in the SAP commercial conversation.

Three maintenance reduction strategies are commonly available. First, third party maintenance, where customers replace SAP maintenance with a third party provider at typically 50 to 60 percent of the SAP maintenance cost. Second, partial termination, where unused or excess licenses are returned to SAP and maintenance on them stops. Third, contract level negotiation, where the maintenance percentage itself is reduced as part of a broader renewal or conversion conversation. The detail is in our SAP maintenance costs analysis.

Renewal negotiation as a cost lever

The renewal is the single highest leverage commercial conversation a customer has with SAP. The leverage is at the renewal because the contract is open. Outside the renewal window, the contract is closed and the customer pays whatever the contract says. The renewal is also the only opportunity to address the maintenance percentage, the price protection on future additions, and the audit settlement terms that prevent the next audit from producing a finding.

The negotiation outcomes we observe are between 25 and 50 percent better when the renewal preparation begins 12 months ahead of the renewal date than when it begins in the renewal quarter. Time is the most important variable in renewal negotiation.

The renewal negotiation framework is in our renewal negotiation white paper. The headline practices are summarized in our renewal negotiation expertise page.

The governance posture that holds the savings

Cost reduction without governance produces a one time saving that erodes over the following 12 to 24 months. Cost reduction with governance produces a saving that holds in place and compounds. The governance posture has three elements.

First, continuous internal measurement of usage against contract. Most customer estates measure quarterly or annually. The customers who produce sustained savings measure monthly and act on the measurement. Second, ownership of the SAP commercial conversation at the CFO level rather than the CIO level. The cost decisions are budget decisions, not technology decisions. Third, an independent advisor on retainer to provide market context that internal teams do not have visibility into. The CIO and CFO see one SAP relationship. An independent advisor sees fifty. The detail of the governance model is in our SAP license center of excellence guide.

Building the CFO business case for optimization

The CFO business case for optimization rests on three numbers. The baseline current spend on SAP across license, maintenance, infrastructure, and consulting. The achievable target spend if the optimization framework is fully executed. The cost of executing the framework, which is overwhelmingly internal time plus a modest advisor fee.

For Fortune 500 customers, the typical achievable target is a 25 to 40 percent reduction in total SAP spend over a 24 month execution horizon. The cost of executing is typically less than 5 percent of the savings. The business case is not difficult to construct. The harder question is sustaining the savings, which is the governance question addressed in the prior section. For broader context see our license consulting service overview and the license optimization expertise page.