Many SAP customers face over-paying on SAP Support and Maintenance as a result of being over-licensed. This can be the result of a number of different factors including over-buying at the beginning of the contract, over-buying throughout the ownership lifecycle, erroneous license audits, natural shrinkage and divestments.
The big question is, if you are over-licensed, can you reduce your annual SAP Support and Maintenance fees in order to reduce your IT costs? Read on to find out…
SAP Annual Support and Maintenance fees are calculated according to your SAP Maintenance Base. The maintenance fee will typically be 17% or 22% of the Maintenance Base depending on the support package you are on. The Maintenance Base is based on the support relevant products you have purchased from SAP.
There are three main categories of license that are subject to SAP Support and Maintenance fees: User Licenses, Package Licenses and HANA Database Licenses. If you are runtime licensed on the HANA database your HANA license fee will be calculated as a % of your net User and Package license fees. Support will then be calculated on the total net license fee for all the whole maintenance base. Therefor if you are over-licensed on Users and Packages you will also be over-licensed on HANA further contributing to the excessive support costs.
So, can you reduce your maintenance bill?
SAP says no! But I beg to differ. I have heard time and time again the same strap lines coming from SAP account executives: “You cannot reduce the maintenance base”, “The maintenance base must carry forward at 100%”, “You cannot partially terminate your Support contract”, “Your contract doesn’t allow it”. In my opinion these statements are either completely untrue or at best only partially correct. And this is based on the actual contract wording these principles are based on.
Furthermore, if these statements were true, then each and every SAP customer’s annual Support and Maintenance bill would forever remain equal to their highest maintenance base value at any given time. Each time they buy it goes up, but it can never come down. Sure, you can trade licenses with SAP when doing a large deal but again the Maintenance Base will carry forward at 100% or there will be a net spend meaning both the Maintenance Base and annual Support and Maintenance fees will increase.
Why does SAP tell
To protect the maintenance base of course! Support and Maintenance fees make up circa 45% of SAP’s annual revenue (SAP annual results). SAP considers this as booked, forecastable, reliable revenue. This helps the company maintain stock value and forecast profits and returns for investors. SAP therefore defends their Support and Maintenance revenue base vigorously, as many SAP customers will be only too aware of.
It is true that SAP contracts normally stipulate that you cannot partially terminate your Support and Maintenance contract. Arguably however, this wording doesn’t limit you in the way that SAP would have you believe. In reality, this wording relates to the partial termination of active software. For example, if you are using 10 applications you cannot terminate support on 3 of them and continue with support on the rest. Likewise, you cannot terminate the America’s part of a Global PSLE and offer the support for that part of the estate to a third-party provider whilst keeping the EMEA part on SAP support. This is what the wording really prevents you from doing. In that context I agree with the wording completely.
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So, what can you do to reduce SAP Support
and Maintenance costs?
I agree with SAP that Support has to be paid against 100% of the estate, however the opportunities to optimize support costs fall around defining what 100% of the estate is. For example, if your Maintenance Base is $4.5m, maintenance bill will be c.$1m per annum. If you have $1m worth of software that is not in use, then arguably you are over-paying by $220k per annum. As long as the software remains part of your estate, i.e. installed and accessible, whether it is in use or not, you will still need to pay support and maintenance fees. Simply revoking access to the software would not be enough. On the other hand if you archive the data, decommission the application and surrender the licenses (i.e. surrender ownership / terminate / dispose of), then the software no longer forms part of the estate and cannot be subject to Support and Maintenance fees, contrary to what SAP might tell you.
Annual Support and Maintenance contracts are renewed annually, so your commitment to SAP support extends only until the end of the year for the current calendar year of support. There is nothing in any SAP contract or Maintenance Agreement that I have ever read that says you must carry on paying Support and Maintenance on software you no longer use or own. Neither do the contracts actually stipulate that the maintenance fee cannot be reduced.
Typically, you will have to give 3 months’ notice to terminate software. As long as you give SAP notice of the surrender by 30th September there is very little SAP can do about it, despite their inevitable objections. As the Support and Maintenance contract must be on 100% of the estate, you would be entitled to renew according to the new maintenance base, which would now be reduced. In terms of accounting for the maintenance base reduction SAP might say they can’t, but it is easily accounted for and not something customers need to worry about. It would be SAP administrative burden to account for changes when valid instruction is given.
The first step in saving costs lies in identifying and quantifying potential savings. You need to perform a detailed evaluation of software usage and clearly identify spend addressable by these measures, spend addressable by other measures and non-addressable spend. You need to review your SAP contracts to understand the terms and conditions applicable to you as they may vary from customer to customer. Then you can develop a strategy for execution.
What if I am over-licensed on named users?
User licenses also contribute to the Maintenance Base and are subject to annual maintenance fees. Of the most common user types the Professional and ESS user licenses range from $2400 down to $100 at 50% discount. It is therefore critical that SAP customers buy the right licenses for their users and the right number of licenses to ensure maintenance fees reflect what the business actually needs. Before terminating user licenses, you need to perform a user classification review to determine what licenses you need, and which are addressable surplus. Using a SAM tool like samQ License Optimizer can help you do this and will ensure your analysis is accurate, reliable and making best use of the cheaper license types available.
When can I realize savings?
The last date for notice of software termination is typically 30th September (3 months’ notice) so the latest you should begin your preparations would be beginning of June giving you 3 months lead time to perform your analysis and preparations. If you follow these time-lines savings could be realized from the beginning of the next calendar year. So realistically you can only ever really affect next years maintenance bill if you start planning and acting within the first 6 months of the year. So why not get started today!
If you are paying too much for your SAP Support and Maintenance, then get in touch today to find out more about how we can help.
“Disclaimer: The views and opinions expressed in this article are those of the author and the author alone. Nothing in this article should be treated as advice and the author provides no warranties as to the accuracy or completeness of the information contained within.”