SAP RISE vs Traditional SAP Licensing: A TCO Comparison for CIOs and Procurement Leaders

SAP RISE vs Traditional SAP Licensing

Overview

CIOs and procurement leaders face critical decisions when planning their SAP strategy: embracing RISE with SAP – an all-in-one subscription cloud offering – or continuing with traditional on-premises SAP licensing and maintenance.

This choice is strategic and far-reaching, impacting long-term costs, operational control, and the pace of innovation. The total cost of ownership (TCO) is a key factor driving this decision. Understanding each model’s cost drivers, financial trade-offs, and operational implications is essential for making an informed choice.

This advisory compares SAP RISE and traditional licensing through a TCO lens.

We break down the major cost components, provide an illustrative 3-year vs. 5-year cost comparison, and outline what CIOs and procurement professionals should consider.

Short, digestible insights, examples, and a side-by-side cost model will help you evaluate which path best aligns with your organization’s financial and strategic goals.

Key TCO Drivers

Understanding what drives TCO in each model is crucial.

Below are the primary factors that influence the total cost of SAP RISE vs traditional on-premise licensing:

• Licensing Model (CapEx vs. OpEx): Traditional SAP licensing typically involves a large upfront capital expense for perpetual software licenses, followed by annual maintenance fees (~20–22% of license value) as an operating expense. In contrast, RISE with SAP uses a subscription model with no upfront license purchase – instead, you pay a recurring subscription fee (OpEx) that covers software usage and support. This shifts spending from a spike in Year 1 (CapEx) to a steady, predictable annual expense. The financial impact: RISE can improve cash flow and predictability, while on-premise licenses might be capitalized as assets but require a significant initial budget.
• Infrastructure & Hosting Costs: In a traditional deployment, the company is responsible for infrastructure, whether investing in on-premise hardware and data center facilities or paying for cloud hosting on a hyperscaler. These costs include servers, storage, networking, data center operations, and periodic hardware refreshes or hosting fees. Infrastructure is included in the RISE subscription. SAP (through its cloud or hyperscaler partners) provides and manages the hardware and cloud environment. This means no separate hardware purchase or third-party hosting contract is needed for RISE customers. The trade-off is that RISE’s subscription fee bundles these infrastructure costs. Companies with highly efficient or low-cost infrastructure might find they can run on-premise for less, whereas those facing data center upgrades or high hosting bills may see cost relief in the RISE bundle.
• Implementation and Migration: Initial or migration projects are a major cost in either scenario. Whether you move to S/4HANA via RISE or deploy S/4HANA on-premise, you will incur significant one-time costs for systems integration, data migration, configuration, and testing. RISE with SAP includes some transformation tools and services (like process analysis tools and migration assistance). Still, it does not cover the full migration project services – you will either use internal teams or hire systems integrators to do the heavy lifting. These implementation costs (often in the millions) should be factored equally into both options. RISE can accelerate technical setup (since SAP handles infrastructure and software provisioning). Still, it does not eliminate the need for a robust project to convert or redesign business processes and data for S/4HANA. In summary, the budget for the migration/implementation in both cases doesn’t include a free migration.
• Support and Maintenance: Under the traditional model, after going live, you pay annual maintenance to SAP (which provides support and software updates), and you maintain an in-house (or outsourced) team for day-to-day support, BASIS administration, and enhancements. With RISE, SAP’s support services are included in the subscription (covering system maintenance, patches, and agreed service levels), and SAP manages the technical backend. However, you still need internal SAP expertise: your BASIS and functional teams aren’t going away. RISE may reduce technical overhead (like applying patches or managing OS/DB). However, internal staff will still handle configurations, monitor integrations, manage authorizations, and work with SAP support for issue resolution. Because RISE turns the SAP system into a “black box” cloud service, your internal team’s coordination role can become even more crucial. The bottom line is that RISE can offset some support costs (and possibly allow a smaller infrastructure support team). Still, it won’t eliminate the need for skilled internal or partner resources. Traditional deployments give you full control over support; you might optimize costs using third-party support or tailored support models, whereas with RISE, you’re tied to SAP’s support included in the package.
• Upgrades and Enhancements: A significant cost driver over the SAP system’s life is keeping the software up-to-date. In traditional on-premise, you control the timing of upgrades – for example, moving to the next S/4HANA release or applying enhancement packs – but you must budget for those projects (testing, remediation of custom code, downtime, etc.). Many companies postpone upgrades to avoid these costs and disruptions, but eventually, an upgrade cycle (every few years) is needed, incurring service and testing expenses. With RISE, upgrades are handled as part of the subscription service: SAP pushes continuous updates quarterly for the Public Cloud edition; for the Private Cloud, SAP manages technical upgrades on an agreed schedule. This means the technical upgrade costs are largely included in RISE – you won’t need a separate technical upgrade project team for the basis work. However, RISE customers still must test new releases and adapt customizations or integrations continuously. Essentially, RISE shifts you to a continuous improvement model with smaller, incremental updates (which can reduce big-bang upgrade costs but require continuous testing and training effort). The traditional model allows for upgrades to be delayed (saving short-term costs but potentially building up technical debt). In contrast, RISE enforces a steady upgrade pace (costs are baked in, and you get new features faster, but you must be ready to absorb them). This difference can affect TCO: if your organization skips or delays upgrades on-premise to save money, note that with RISE, you are paying for a service that includes regular upgrades (you pay more to get more up-to-date capability).
• Customization and Scope of Services: Another indirect cost factor is how much you plan to customize and extend the SAP system. Traditional licensing allows you to modify the system (within the bounds of support agreements) and build custom add-ons, but heavily customized systems are costly to maintain and upgrade. RISE with SAP strongly encourages a “clean core” and standard best practices to facilitate its cloud operations; excessive customization may not be allowed or could raise your costs (you might need additional services on SAP BTP, which has its own cost if you exceed included credits). If your business requires significant custom development, consider the potential cost of building and maintaining those extensions – either model can accommodate customizations. Still, with on-premise, you manage them entirely, while with RISE, you might need to use SAP’s extension platform (BTP) for compatibility. Also, RISE subscriptions come in tiers (for example, a “premium” tier includes additional components like advanced analytics or AI) – if you need those features, the subscription cost goes up. In contrast, the traditional approach allows you to decide which components to license (and possibly avoid paying for extras you don’t need). Scope of included tools can thus affect TCO: RISE bundles some value-added services (process mining, business networks, etc.) that would cost extra on-prem, but if those aren’t valuable to you, the bundle might be an unnecessary cost.
• Contract Term and Flexibility: RISE with SAP contracts are typically multi-year commitments (3, 5, or even more years). You lock in a subscription for that term, which can be an advantage for price predictability, but it also means you are committed to that spend. Traditional licensing gives more flexibility in that the license is perpetual. After the initial purchase, you could theoretically stop paying maintenance (though you’d lose support and upgrades) or adjust your support model (some companies consider third-party support to reduce costs). With RISE, if you stop subscribing, you lose the rights to use the software and must migrate off – an expensive proposition.
  Additionally, renewal risk exists with RISE: after the initial term, SAP could increase prices, and you may have limited leverage since, by then, you’re deeply invested in the RISE model. Traditional customers face annual maintenance increases too (SAP has been raising on-premise support fees recently). Still, they at least own the licensed asset and have options (like negotiating a lower support level or, as a last resort, using alternate support providers). Exit costs should be considered: leaving RISE could involve a significant effort to transition back to on-prem or to another solution, whereas traditional licensing doesn’t have an equivalent “exit” scenario unless you migrate off SAP entirely. In summary, the flexibility vs. commitment trade-off is a cost consideration: RISE is simpler (one contract, one bill) but less flexible if you need to downscale or change course; on-prem is more complex to manage but gives you more control over how you allocate costs and adapt over time.

Depending on your organization’s situation, each of these drivers will affect SAP’s TCO differently. Next, we use an example scenario to illustrate how these costs can add up over a 3-year and 5-year period under each model.

TCO Comparison: 3-Year and 5-Year Models

To visualize the cost differences, consider a mid-sized enterprise migrating to S/4HANA. For illustration, assume this company needs licensing for 1,000 users and requires a significant implementation project.

Below is a side-by-side comparison of the estimated total costs over a 3-year and 5-year period for Traditional SAP (on-premises license + maintenance) versus RISE with SAP (subscription). These figures are hypothetical but based on typical cost elements:

Assumptions: This is an example for 1,000 users. Traditional licensing costs assume a $4M initial license purchase, 22% annual maintenance, and hardware infrastructure of $0.5M upfront plus operating costs. A RISE subscription is roughly $2M per year for an equivalent scope. Actual costs vary based on negotiated discounts, infrastructure choices, and project complexity.

Analysis:

In this illustrative scenario, the 3-year TCO for RISE with SAP ($8.6M) is lower than the traditional model ($10.2M) by roughly 15-20%. This short-term advantage for RISE comes primarily from avoiding the heavy Year-1 capital costs of licenses and hardware.

Over 5 years, the TCO numbers are almost equal (~$13M each in this example). By year five, the upfront investment of the traditional model is spread out, and the ongoing maintenance and infrastructure costs accumulate, essentially catching up with the all-in subscription costs of RISE.

In longer horizons, a traditional model could even pull ahead in cost efficiency – for instance, if you extend to a 7- or 10-year outlook, owning the license (with just annual maintenance or even opting for third-party support) may cost less than continuing to pay subscriptions. Meanwhile, the RISE model remains a continuous expense with no ownership gained over time.

It’s important to note how sensitive these outcomes are to assumptions:

• If SAP offers aggressive subscription discounts or your infrastructure and upgrade costs on-premise are very high, RISE can be cheaper over several years. (SAP has sometimes claimed up to ~20% TCO savings with RISE in ideal conditions.)
• On the other hand, if your organization already operates a low-cost, optimized infrastructure or if you would choose to minimize upgrades and support costs on-premise, the traditional model can have a lower TCO in the long run. For example, companies that “sweat” their assets – deferring hardware upgrades and major system updates – might find that a steady subscription is more expensive than their current state, which perhaps cuts corners to save cost. RISE’s value is that it includes a high-quality setup (latest hardware, regular updates, robust support), so its cost must be weighed against an equivalent high-quality traditional setup. If you wouldn’t have paid for that service alone, RISE may seem costly for features you didn’t plan to use.

3-Year vs 5-Year Perspective: Many CIOs will evaluate the business case at both 3-year and 5-year intervals. A three-year horizon often highlights the budget impact, and RISE helps avoid a large upfront hit to the budget by spreading costs. By five years, however, the cumulative cost becomes clearer: any initial savings from RISE might shrink or vanish. Thus, CIOs should look beyond the initial contract term. Consider what happens in years 4, 5, and beyond:

• With a subscription, you will continue to pay roughly the same amount (perhaps with an inflation clause or small step-ups) every year. There is no point at which payments stop – if you renew for another 5 years, that’s another significant outlay. In contrast, a company that purchased licenses outright would own the software and potentially face lower costs (maintenance or third-party support) in later years.
• With a perpetual license, after the license is paid, your ongoing costs are primarily maintenance (which, while substantial, is smaller than subscription fees) and infrastructure upkeep. You can discontinue maintenance after a point to save cost (though not without consequences) or negotiate down your footprint.

In summary, the TCO comparison varies by scenario. RISE often wins in simplicity and short-term predictability, and can be cost-effective in the early years or when it prevents large capital expenditures. Traditional licensing can be cost-efficient over a longer period, especially if a company is disciplined in running SAP cheaply.

Every organization should plug in its numbers – including realistic project costs, internal labor, and even the potential cost of future needs – to determine which model yields a lower TCO or better value for the money.

What CIOs and Procurement Leaders Should Consider

Choosing between RISE and traditional licensing is not purely a financial calculation; it’s a strategic decision that should align with your business’s goals, risk tolerance, and IT capabilities.

CIOs and procurement leaders should weigh several key considerations beyond the raw TCO calculations:

• Strategic Value vs. Cost: Consider what strategic benefits each model offers in return for its cost. RISE with SAP promises faster time-to-value, ongoing access to innovation (like AI and continuous process improvements), and simplified vendor management (one throat to choke). Traditional SAP might not deliver new features as quickly, but it offers stability and full control. Leaders should ask: Are the additional services and faster updates in RISE critical to our strategy, or can we achieve our goals with a traditional setup at a lower cost? Sometimes, paying more is justified if it enables a strategic advantage, but ensure those advantages matter to your business.
• Budgeting and Financial Reporting: The shift from CapEx to OpEx can be a deciding factor for finance departments. Subscription costs (OpEx) may be easier to budget as a consistent operational line item, and they avoid depreciation accounting. Traditional licensing’s upfront costs (CapEx) might be feasible for companies with a capital budget available or those wanting to capitalize on software investments on the balance sheet. Your organization’s financial preferences and constraints (for example, an initiative to reduce capital spending or, conversely, a desire to invest one-time cash into an asset) will influence which model is more attractive. Procurement leaders should also factor in the impact on cash flow (steady subscription payments vs. lumpy expenditures).
• Operational Control and Responsibility: With an on-premise model (or self-managed cloud), you maintain control over the environment – your IT team decides on infrastructure, upgrade timing, and can tune systems to your needs. This control can be valuable if you have strong capabilities and unique requirements. RISE’s responsibility is to SAP (and its cloud partners). Outsourcing technical operations can free your team from infrastructure management, but it also means giving up some control. You’ll be tied to SAP’s standard service levels, cloud architecture, and release schedule. Consider your internal IT team’s maturity and desire to manage infrastructure. Some CIOs will value the one-stop accountability of RISE (“SAP runs it, not my problem”), while others will worry about being dependent on SAP for performance and issue resolution. If your organization demands high customization or very granular control (e.g., specific security or data residency setups), make sure RISE can accommodate that, or you might prefer the flexibility of traditional deployment.
• Flexibility and Vendor Lock-In: Vendor lock-in risk is higher with RISE. You entrust your core ERP entirely to SAP’s cloud and contract terms. Exiting RISE (should you ever need to) could be complex and costly – you would need to migrate your data and purchase new licenses or find an alternative solution. In the traditional model, while you are certainly “locked in” to SAP software, you at least own the software licenses. You can choose where and how to run them (on your servers, in any cloud, managed by any partner), switch support providers, or renegotiate maintenance. Procurement should consider scenarios such as: What if SAP’s future pricing or performance is unfavorable? Do we have the flexibility to pivot? If maintaining flexibility is a priority, you might negotiate termination clauses or shorter terms in a RISE contract or lean toward retaining an on-premises footing. Also, consider scalability and modifications: adding or removing users/modules. RISE contracts must be amended for growth or reductions, whereas traditional licensing allows you to redeploy licenses internally (and drop maintenance on unused licenses if needed). Each approach has different implications for how easily you can adapt usage and cost.
• Innovation and Upgrades Pace: Consider how quickly your business wants to adopt new technology. RISE with SAP will keep you updated on the latest S/4HANA releases and provide access to new cloud-only innovations (for example, certain AI or analytics features available only in SAP’s cloud). This can be a boon for companies that want to stay at the cutting edge with minimal friction. However, continuous updates mean you need a robust process for regularly testing and absorbing changes. Some organizations find value in a slower upgrade cycle to minimize disruption – they may not want quarterly changes flowing into their mission-critical ERP. If your company prefers stability and has slower-moving processes, the on-prem model (where you decide when to upgrade, perhaps only every 3-5 years) offers that control. If you aim to drive rapid digital transformation and want SAP to handle the technical side of frequent upgrades, RISE supports that. Align the choice with your business’s appetite for change and innovation. Key question: Does your organization have the capacity to leverage the innovations bundled in RISE? If not, you might pay for bells and whistles that sit unused.
• Total Ownership vs. Continuous Subscription: Psychologically and financially, some companies value that with traditional licensing, they own a perpetual asset. After spending millions on licenses, those licenses are yours indefinitely – even if you stop paying maintenance, you can legally continue running the software (you just won’t get updates or official support). With RISE, if you stop paying, your rights to use the software cease. There is no residual asset. Over a long span, traditional customers often take comfort in knowing that once licenses are paid off, they can lower their costs (say, switch to a third-party support provider or run the system in a “steady state” at minimal expense). RISE is more like leasing – a continuous expense with no equity. This isn’t to say one is better (many CFOs prefer the flexibility of leases in other contexts), but it’s a philosophical difference. When negotiating, be aware that SAP often prices RISE, knowing you have no exit without re-licensing; they may be less flexible than a perpetual license sale, where you hold the asset. Also, consider end-of-life plans: SAP has committed to supporting S/4HANA on-premise until at least 2040. That means you could theoretically run a traditional deployment for 15+ years. In contrast, RISE pushes you toward SAP’s evolving cloud offerings, which will undoubtedly continue to change; you are essentially along for the ride. Ensure that this aligns with your long-term IT roadmap.
• Negotiation, Leverage, and Independence: Procurement leaders should consider who is advising and assisting in this decision. SAP will advocate for RISE if it aligns with their cloud revenue goals, and the SAP account team might present cost studies favoring the subscription model. It’s crucial to validate those assumptions independently. Engage your finance analysts or third-party advisors to model TCO. Additionally, when negotiating, remember there are alternative options within the SAP ecosystem (for example, hosting S/4HANA in a hyperscaler of your choice with your license or using SAP S/4HANA Cloud without the full RISE bundle). The best deal often comes from showing SAP that you have a well-researched plan and are willing to pursue whichever option provides the best value. This might include obtaining infrastructure quotes from cloud providers or estimates from third-party support firms to benchmark what running SAP on your terms would cost. Do not rely solely on SAP’s word or that of SAP-aligned consultants – use independent data to strengthen your position.

Practical Impact and Recommendations

Making the right choice between RISE and traditional licensing requires a holistic evaluation.

Here are practical recommendations and key takeaways for CIOs and procurement teams as they navigate this decision:

1. Perform a Comprehensive TCO Analysis: Don’t take vendor claims at face value. Conduct a detailed internal analysis (or commission an unbiased third-party study) of each option’s total 5-10 year cost. Include all relevant costs: licenses, maintenance, subscriptions, infrastructure, implementation, internal labor, periodic upgrades, and potential exit or transition costs. This will give you a fact-based view of the financial difference. Update this analysis with multiple scenarios (best-case, worst-case) to understand the range of outcomes. Having your own TCO model arms you with data to challenge assumptions and make a grounded decision.
2. Align the Model with Business Strategy: Ensure the choice aligns with your company’s IT strategy and business needs. If your priority is agility, faster innovation, and offloading technical complexity, the subscription model (RISE) supports that goal, but make sure you have the processes to absorb continuous change. If your priority is cost control and maximizing value from existing investments, an on-premise approach (possibly combined with selective cloud hosting or third-party services) might fit better. Consider intangible benefits (innovation, simplicity, single-vendor accountability) and weigh them against the costs. Decide as part of a broader cloud strategy: for example, if you have a mandate to move all systems to the cloud, RISE might dovetail with that; if you prefer a multi-cloud, multi-vendor approach, you might lean toward keeping your SAP environment under your control.
3. Plan for the Long Term (Beyond Initial Contract): Whether you choose RISE or not, plan beyond the initial 3- or 5-year term. If you go with RISE, negotiate clarity on renewal terms – try to cap price increases at renewal and ensure you have provisions for scaling the subscription up or down as your business changes. Also, consider an exit strategy upfront: negotiate clauses about data extraction or the ability to convert to a perpetual license if the subscription ends (SAP sometimes offers conversion options, but they must be discussed beforehand). If you stay traditional, keep an eye on SAP’s support timelines and policies (e.g., maintenance fee increases, support deadlines for older releases) and have a plan for how you will manage your environment in 5-10 years (upgrade, migrate, or even potentially consider SaaS at that point). In both cases, avoid being forced into a decision down the road by proactively planning now.
4. Use Independent Expertise – Don’t Go It Alone: Engage independent SAP licensing and cloud experts to support your decision-making and negotiations. Firms specializing in SAP licensing (such as Redress Compliance or similar advisory firms) can provide unbiased insights into contract terms, benchmark pricing, and licensing pitfalls that general consultants or vendor-aligned advisors might miss. Independent experts work for you, not for SAP – they can validate the “fine print,” like how indirect usage, user counts, or bundled services might affect costs. They can also help you optimize licensing (ensuring you’re not over-provisioned) and negotiate better terms. Avoid relying solely on SAP’s proposed business case or any consultant strongly tied to SAP’s sales interests. An independent review often pays for itself by identifying cost savings or risks before you sign anything.
5. Drive a Value-Focused Negotiation: If you enter negotiations with SAP (for either route), be armed with your internal analysis and a clear set of requirements. Emphasize that you seek the best TCO and value for your business. Use leverage points: for example, the timing of your current license maintenance renewal can be a negotiation lever (SAP may offer a better RISE deal to prevent you from renewing traditional maintenance, or vice versa). Compare SAP’s RISE offer with alternatives – e.g., pricing out the cost of buying licenses and using a hyperscaler or a managed service provider to host. If SAP knows you have done your homework, you will likely get a more competitive offer. Also, consider asking for specific concessions: if going RISE, maybe seek additional credits for SAP BTP or contractual safeguards on service performance; if staying on-prem, perhaps secure a longer-term maintenance fee cap or migration assistance services included at a discount. You aim to ensure whichever choice delivers maximum value, not just lower cost.
6. Monitor and Adjust: Once the decision is made and executed, continuously track the actual costs and benefits. CIOs should monitor whether the expected TCO savings (or cost premiums) materialize. For example, if you chose RISE expecting to save internal support effort, verify that your team’s workload and headcount needs were reduced. If you stayed on-prem expecting lower cost, monitor your budgets and ensure costs aren’t creeping up unexpectedly (through hardware failures or extra consulting needs). This ongoing governance will help you course-correct. It also prepares you for future decisions, such as a RISE renewal negotiation in five years or revisiting a cloud move later if you initially stayed on-prem. Being data-driven in the post-decision phase will validate whether you made the right call and inform any adjustments.

Conclusion: The decision between SAP RISE and traditional licensing is complex, but by focusing on TCO and strategic alignment, CIOs and procurement leaders can cut through the hype. RISE with SAP offers a compelling vision of a simplified, cloud-first ERP with potential cost predictability and innovation gains.

In contrast, traditional licensing offers tried-and-true control and possibly lower long-term costs for the savvy operator. The best choice depends on your organization’s context – no one-size-fits-all answer exists.

What is clear, however, is that due diligence and independent thinking are essential. Leverage expert advice that puts your interests first, scrutinize the numbers, and make a proactive decision based on your roadmap (not just the vendor’s).

Doing so, you’ll be well-equipped to secure the optimal commercial and operational outcome for your SAP investment.