Total Contract Value (TCV) is one of the most useful SaaS metrics for business growth.
That’s because tracking your TCV can help you to accurately predict your revenue and optimize your sales and marketing strategies.
Many SaaS companies, however, struggle with calculating and understanding their TCV.
So, in this article, we will explain exactly how to calculate your company’s TCV and how it can benefit your business.
Read along to learn all you need to know about TCV, including:
- What Is Total Contract Value (TCV)?
- How to Calculate TCV
- Why TCV is an Important Metric
- TCV vs ACV – What’s the Difference?
- The Big Problem With Total Contract Value (TCV)
- 57 Examples of Annual Contract Value (ACV) from Private B2B SaaS Businesses (+ Recurring Revenue – ARR, MRR)
What Is Total Contract Value (TCV)?
Total Contract Value (TCV) is a SaaS metric that measures the total revenue of a contract, including both recurring revenue and any other fees (e.g. one-time sign-up fees, professional service fees, etc.).
To put it simply, TCV shows how much value (in dollars) a customer brings to your company over the entire length of their contract.
How to Calculate TCV
To calculate your company’s TCV, you need to follow this formula:
Total Contract Value = (Monthly Recurring Revenue (MRR) x Contract Term Length In Months) + Any One-time Fees
Now, something to keep in mind if you plan to change your pricing or contract length is that TCV depends on both of these factors, so any changes to the contract length or MRR will affect your TCV, too.
However, if your company offers services on a one-time payment basis, your TCV will simply be the total price the customer paid, as there’s no recurring revenue.
Now, let’s look at a TCV example:
Let’s say an “example customer” signs a two-year contract for a Salesforce sales and service cloud Enterprise plan that costs $175 per month.
Here’s how you’d calculate the TCV for this customer:
- TCV = $175 x 24 months = $4200
Of course, if the customer had to pay any one-time fees, they would also be added to the calculation.
Why TCV is an Important Metric
TCV calculates your company’s actual total revenue generated from contracts instead of expected revenue, which means it accurately reflects your business growth.
In particular, tracking your TCV is useful for:
- Identifying the most valuable customers. Calculating the TCV of different customer demographics shows which customer groups are the most valuable for your company. This way, you can focus your sales and marketing on the most profitable customer demographics and maximize revenue potential.
- Identifying the contract lengths that work best for different customer groups. TCV helps you see if, for example, one customer group prefers to buy a monthly subscription instead of an annual one. This information can help you optimize your marketing and sales efforts, especially for long-term contracts.
- Accurately predicting your revenue. TCV calculations are based on real numbers, so it helps you to accurately measure your revenue. This way, you can attract more investors and strategically invest in marketing and sales.
TCV vs ACV – What’s the Difference?
As the names suggest, both Total Contract Value (TCV) and Annual Contract Value (ACV) measure how much a contract is worth.
However, the main difference between TCV and ACV is that TCV calculates all charges (recurring and one-time) over the entire length of the contract, whereas ACV only calculates recurring charges and averages them out across the year.
So, basically, ACV measures the average revenue from one contract, while TCV measures the whole contract revenue.
Let’s take an example:
If a customer signs up for a 3-year contract at your company at a base price of $300 per month and an onboarding fee of $100, this customer’s TCV would be calculated as such:
- TCV = ($300 x 36) + $100 = $10,900
And here’s how you’d calculate this customer’s ACV:
- ACV = ($300 x 36) / 3 years = $3,600
What you should keep in mind, though, is that no single metric can serve as a perfect indicator of your company’s health.
This means that, just like with ACV, your business success doesn’t always correlate with a high or low TCV.
So, to get a better understanding of your business growth, it’s best to calculate both ACV and TCV alongside other SaaS metrics, such as:
- ARR. This metric calculates the recurring revenue that your business expects to get in a year.
- CAC. This SaaS metric estimates how much your company spends on getting a new customer.
- Churn rate. Use this metric to measure how many customers your company loses in a month and how it affects your revenue.
- Revenue run rate. This metric allows you to predict how much revenue your company’s going to get based on your previously earned revenue.
The Big Problem With Total Contract Value (TCV)
However, there is one extremely important thing to remember about the concept of TCV that makes a big difference for just about every aspect of your financial reporting.
Who’s got the money?
If you’ve signed up a user for the two-year plan at $1000 per year, you may think you have a $2000 customer. And that’s what TCV would in fact tell you.
But you only have what they’ve actually taken out of their pockets. The customer could very easily cancel in the middle of the year and leave you high and dry come the next payment cycle. If you had been using TCV to come up with your revenue predictions, you might be quite a bit off from reality!
Now, contracts can certainly include penalty clauses for breaching them, but how often are they really going to be enforced? If the customer has a legitimate reason for canceling (such as a lack of support on your part, missing features, problems with their own business) then you risk a major PR headache from enforcing a penalty clause.
For that reason, the only way to truly integrate multi-year TCV calculations is by dealing with prepaid deals only. That value promised by the contract can’t be counted until it’s in your hands.
Since revenue is what constitutes TCV, here are 57 examples of annual contract value (ACV) SaaS metrics from private B2B SaaS businesses, along with monthly (MRR) and annual (ARR) recurring revenue stats. We’ve compiled data from companies with both high and low ACV.
57 Examples of Annual Contract Value (ACV) from Private B2B SaaS Businesses (+ Recurring Revenue – ARR, MRR)
Seeforge has an annual contract value of $108, with annual recurring revenue of $5400 and monthly recurring revenue of $450. Source: getlatka.com/companies/seeforge |
Ease.Space has an annual contract value of $708, with annual recurring revenue of $7788 and monthly recurring revenue of $649. Source: getlatka.com/companies/ease.space |
Actiondesk has an annual contract value of $3000, with annual recurring revenue of $12000 and monthly recurring revenue of $1000. Source: getlatka.com/companies/actiondesk |
Attentive has an annual contract value of $4800, with annual recurring revenue of $14400 and monthly recurring revenue of $1200. Source: getlatka.com/companies/attentive |
Strattic has an annual contract value of $600, with annual recurring revenue of $18000 and monthly recurring revenue of $1500. Source: getlatka.com/companies/strattic |
Suitecrm has an annual contract value of $180, with annual recurring revenue of $18000 and monthly recurring revenue of $1500. Source: getlatka.com/companies/suitecrm |
Shedwool has an annual contract value of $480, with annual recurring revenue of $24000 and monthly recurring revenue of $2000. Source: getlatka.com/companies/shedwool |
Auvenir has an annual contract value of $1200, with annual recurring revenue of $28800 and monthly recurring revenue of $2400. Source: getlatka.com/companies/auvenir |
Devslopes has an annual contract value of $240, with annual recurring revenue of $31200 and monthly recurring revenue of $2600. Source: getlatka.com/companies/devslopes |
Frank has an annual contract value of $3600, with annual recurring revenue of $36000 and monthly recurring revenue of $3000. Source: getlatka.com/companies/frank |
Academyocean has an annual contract value of $2400, with annual recurring revenue of $36000 and monthly recurring revenue of $3000. Source: getlatka.com/companies/academyocean |
Illumineto has an annual contract value of $360, with annual recurring revenue of $36000 and monthly recurring revenue of $3000. Source: getlatka.com/companies/illumineto |
Nameshouts has an annual contract value of $300, with annual recurring revenue of $51000 and monthly recurring revenue of $4250. Source: getlatka.com/companies/nameshouts |
SlidesUp has an annual contract value of $5400, with annual recurring revenue of $54000 and monthly recurring revenue of $4500. Source: getlatka.com/companies/slidesup |
Vshsolutions has an annual contract value of $90, with annual recurring revenue of $54000 and monthly recurring revenue of $4500. Source: getlatka.com/companies/vshsolutions |
Growyourbase has an annual contract value of $6000, with annual recurring revenue of $78000 and monthly recurring revenue of $6500. Source: getlatka.com/companies/growyourbase |
Missinglettr has an annual contract value of $160, with annual recurring revenue of $96000 and monthly recurring revenue of $8000. Source: getlatka.com/companies/missinglettr |
Analyticsintelligence has an annual contract value of $17143, with annual recurring revenue of $120000 and monthly recurring revenue of $10000. Source: getlatka.com/companies/analyticsintelligence |
Pixelme has an annual contract value of $400, with annual recurring revenue of $120000 and monthly recurring revenue of $10000. Source: getlatka.com/companies/pixelme |
Mailinator has an annual contract value of $420, with annual recurring revenue of $126000 and monthly recurring revenue of $10500. Source: getlatka.com/companies/mailinator |
Richpanel has an annual contract value of $2400, with annual recurring revenue of $168000 and monthly recurring revenue of $14000. Source: getlatka.com/companies/richpanel |
Chefsforseniors has an annual contract value of $2954, with annual recurring revenue of $192000 and monthly recurring revenue of $16000. Source: getlatka.com/companies/chefsforseniors |
Rheaply has an annual contract value of $14400, with annual recurring revenue of $201600 and monthly recurring revenue of $16800. Source: getlatka.com/companies/rheaply |
Prospect has an annual contract value of $510, with annual recurring revenue of $204000 and monthly recurring revenue of $17000. Source: getlatka.com/companies/prospect |
Recapped has an annual contract value of $2400, with annual recurring revenue of $240000 and monthly recurring revenue of $20000. Source: getlatka.com/companies/recapped |
Hellotars has an annual contract value of $1600, with annual recurring revenue of $240000 and monthly recurring revenue of $20000. Source: getlatka.com/companies/hellotars |
Likvido has an annual contract value of $857, with annual recurring revenue of $300000 and monthly recurring revenue of $25000. Source: getlatka.com/companies/likvido |
Ppcscope has an annual contract value of $492, with annual recurring revenue of $317832 and monthly recurring revenue of $26486. Source: getlatka.com/companies/ppcscope |
Theroishop has an annual contract value of $7000, with annual recurring revenue of $350004 and monthly recurring revenue of $29167. Source: getlatka.com/companies/theroishop |
Outbound has an annual contract value of $3600, with annual recurring revenue of $360000 and monthly recurring revenue of $30000. Source: getlatka.com/companies/outbound |
Weblium has an annual contract value of $120, with annual recurring revenue of $390000 and monthly recurring revenue of $32500. Source: getlatka.com/companies/weblium |
Revenuecat has an annual contract value of $3120, with annual recurring revenue of $405600 and monthly recurring revenue of $33800. Source: getlatka.com/companies/revenuecat |
Key Takeaways
As we mentioned, no one metric can determine your business’ health – and neither can TCV.
However, combined with other SaaS metrics, TCV can be a great tool for your business growth.
So, here are some of the key points you should take away from this article:
- Total Contract Value (TCV) measures how much revenue in total a customer brings over the duration of their contract with your company.
- To calculate your TCV, simply multiply your monthly recurring revenue by the contract length in months and add any one-time fees the customer paid.
- Tracking TCV can help you to accurately measure and predict your revenue and, by breaking down your TCV to different customer groups, you can identify which of them are the most valuable to your company.
- Although TCV measures real numbers, your TCV will not reflect the exact amount of revenue you’re getting if a customer breaches the contract.