Total Contract Value (TCV) is a critical metric that measures how much a contract will be worth over its lifetime. It’s particularly useful for subscription model businesses (e.g., SaaS platforms) as it provides an insight into the amount of revenue a business can expect to earn from an individual customer once they’ve signed a contract or license agreement. It also accounts for recurring revenue and fees, making it a highly accurate indicator of future profitability.
TCV differs from Annual Contract Value (ACV) because TCV includes all payments across the lifetime of a contract whereas ACV is only concerned with annualized figures. It’s often the case that one-time fees and other figures are excluded from ACV too, whereas they’re always included in TCV calculations.Knowing average TCV alongside other metrics such as Customer Acquisition Cost (CAC) helps leaders to develop better long-term strategies and optimize their profitability.
It can be calculated using the following formula:
TCV = (Monthly Recurring Revenue x Contract Length) + One-time Fees