SaaS businesses track a wide range of metrics to measure growth and performance. Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), Customer Lifetime Value (LTV), and churn rates. While these metrics are widely discussed, Total Contract Value (TCV) receives much less attention, even though it plays an important role in understanding deal size and committed revenue.
Total Contract Value (TCV) is the total amount of revenue a business expects to earn from a customer contract over its entire duration. It includes recurring subscription fees, whether billed monthly or annually, along with any one-time charges such as setup, onboarding, or implementation fees.
TCV includes only what is written in the contract. It does not account for estimates, future upsells, or renewal assumptions.
TCV is easy to calculate. The formula for calculating TCV is simple:
TCV = (Recurring subscription fee × Contract duration) + One-time fees.
For example, a customer pays $500 monthly for a year, totalling $6,000. If the contract also includes a one-time setup fee of $1,000, the total contract value becomes $7,000. The value stays the same unless the contract terms change. This value stays the same unless the customer upgrades, downgrades, or adds new features later.
For SaaS businesses, TCV plays an important role in sales planning, forecasting, and deal evaluation.
Sales teams use TCV to compare deal sizes and prioritize higher-value contracts. Finance teams use these figures to understand future revenue commitments and plan scaling efforts. Meanwhile, leadership teams use TCV to measure how strong the pipeline is. It also gives a clear view of contracted revenue.
TCV is the total amount a customer agrees to pay over the entire contract period and ACV shows the value of that contract on a yearly basis.
For example, consider a three-year contract with a total value of $36,000
The TCV is $36,000.
The ACV is $12,000.
TCV provides a comprehensive view of a deal's value from the beginning to the end. ACV helps you compare contracts of different lengths by looking at their yearly value.
TCV is often mentioned alongside Customer Lifetime Value (LTV), but the two measure different things.
TCV looks at what is written in the contract. Once a deal is signed, its value is fixed and does not change. LTV looks beyond the contract and estimates how much revenue a customer might bring in over time, including renewals, upgrades, or additional purchases.
In simple terms:
• TCV is contract-based and certain.
• LTV is estimate-based and forward-looking.
Both metrics matter, but each answers a different question, and they should not be treated the same.
TCV works best when contracts have a clearly defined start and end date. It is less accurate for month-to-month or evergreen subscriptions, where customers can cancel at any time.
TCV may also be less reliable for usage-based pricing unless the contract includes committed minimums. In these cases, actual revenue can differ from the initial contract value.
Total Contract Value helps SaaS businesses understand the true size of their deals and the revenue committed through customer contracts. While it does not predict future customer behavior, it provides a clear view of contract-based revenue.
When used alongside metrics like ACV and LTV, TCV helps SaaS teams better understand sales performance, plan revenue, and support long-term growth.