Definition
Total Contract Value (TCV) is the total revenue a customer contract is worth over its entire duration, including recurring charges and any one-time fees (like onboarding or setup).
Unlike ACV, which annualizes contract revenue, TCV captures the full economic value of the deal.
Why TCV matters in SaaS
- Cash flow planning- TCV shows the true revenue commitment secured, helpful for forecasting.
- Deal evaluation- A $600k three-year contract may have a higher TCV than a $200k one-year contract, but the annual impact is the same. Looking at both TCV and ACV prevents misinterpretation.
- Sales incentives- Some teams compensate reps on TCV to encourage larger multi-year deals.
- Investor conversations- Big TCV wins look good in announcements, but savvy investors dig deeper into ACV and ARR to assess sustainability.
SaaS-specific nuance
- Multi-year deals: A longer contract inflates TCV but doesn’t necessarily improve annual growth if revenue recognition is spread.
- One-time fees: Including setup or services in TCV is common, but those don’t contribute to recurring revenue. For ARR analysis, strip them out.
- Risk factor: A large TCV deal with upfront payments might be attractive for cash flow, but risky if tied to a single customer.
Worked example of calculating total contract value (TCV)
A SaaS company signs a 3-year deal:
- $100,000 annual subscription
- $20,000 one-time onboarding fee
TCV = (100,000 x 3) + 20,000 = 320,000
If reported as ACV: $100,000.
If reported as ARR: $100,000.
But TCV highlights the full $320,000 contract commitment.
Common pitfalls
- Confusing TCV with ACV: TCV inflates when contract length grows, while ACV remains the steady annual view.
- Overstating growth: A few big multi-year deals may spike TCV without increasing annual run rate.
- Misaligned incentives: Paying sales commissions on TCV can push reps to over-discount for longer contracts.
How to improve TCV
- Bundle onboarding, training, or support as paid add-ons.
- Encourage multi-year contracts with pricing incentives.
- Introduce tiered pricing that rewards customers for longer commitments.
- Upsell additional modules or seats during renewal negotiations.
TCV vs. ACV vs. ARR
TCV can look impressive in press releases, but ACV and ARR tell the real story of sustainable growth.
AI prompt
What to provide the AI beforehand
- Number of contracts closed and their total value
- Average contract length (years)
- Breakdown of recurring vs. one-time fees
- Segment data (SMB, enterprise)
- Notes on pricing, discounting, and sales compensation policies
Act as the head of sales at a [seed-stage / Series A / growth-stage] SaaS company. Our average TCV is [insert $X]. Break down TCV by [insert segment, e.g., SMB, mid-market, enterprise]. Identify whether deal length, one-time fees, or upsells are driving TCV growth. Recommend 2–3 strategies to increase TCV while keeping ACV and ARR growth healthy.
