If you’re in the software-as-a-service (SaaS) industry, then you know that total contract value (TCV) is important. But what is total contract value and how do you calculate it? This blog post will answer those questions and more.
I remember when I first started working in SaaS sales. My manager at the time sat me down and said, “You need to understand two things: customer lifetime value (LTV) and total contract value (TCV).” I nodded along, pretending like I knew what he was talking about even though I had no clue.
Thankfully, my manager took the time to explain both concepts to me. What is total contract value and what is customer lifetime value? LTV is pretty straightforward – it’s a metric that predicts the net profit attributed to the entire future relationship with a customer. In other words, it tells you how much revenue one customer will generate over their lifetime with your company. But TCV is a little bit different – and arguably more important for sales teams because it directly impacts their quotas.
What is Total Contract Value in SaaS?
The total contract value is the price that the buyer and seller agree to for the purchase of the product or service. This includes any taxes, fees, or other charges that may be associated with the purchase.
Total Contract Value (TCV) Calculator
To calculate your total contract value, enter the monthly recurring revenue, length of the contract, and contract fees.
Examples of Total Contract Value
A list of current projects that you’re working on, including their total contract value, the value of any outstanding balances, and when the project is expected to start and end.
The total cost of the contract will be all-inclusive of applicable taxes and tariffs.
The percentage complete will be calculated as the total contract value earned so far divided by the total value of the contract.
Where the total contract value is more than 100,000 GBP, and there is only one bid, the procurement officer must consult with the department head and the borough solicitor on how to proceed.
What Is Contract Value?
A contract value is how much it is worth. These values can range in millions of dollars.
Several factors determine the worth of a contract, such as:
- The service or product involved in the contract.
- The size of the bidding agency.
- The government level.
- The participating industry.
The total contract value is how much a single deal will be worth over its lifetime.
If calculated correctly, total contract value can help you put together a viable estimate that enables you to determine your company’s profitability.
This figure can be used to help determine your annual contract value per customer, annual contract value, and customer acquisition cost.
Know Your ACV Strategy
You don’t need a large ACV to have a profitable business. You just need to find the right ACV strategy for your niche.
SaaS companies have often built their companies with very low ACVs, meaning their CACs are relatively low.
B2B and B2C contracts have different ACVs, with the former being lower.
You can have a successful company with a low ACV. Spotify is a great example of this, as they have a small ACV but a large user base. Their CAC is also small, which contributes to their success.
Citrix, on the other hand, has a large ACV but a smaller user base. Their customer acquisition value is also larger than Spotify’s.
Use the average contract value to help you make the right decisions when it comes to your marketing strategy.
What is the total value of the contract?
A total contract value (TCV) is the combined value of a company’s monthly recurring revenue (MRR) and any additional fees, multiplied by the length of the contract. In other words, it represents the total amount that will be earned throughout a signed agreement between two companies.
What is Total Contract Value (TCV) in SaaS?
The “Total Contract Value” (or TCV) is a measurement of the total value of signed, fully executed, and non-cancelable contracts that are active.
This can differ from bookings, as bookings may be defined to include only certain items and only the first year of a multi-year agreement.
TCV is not typically limited to the first year, nor would it typically accept certain transaction types. Simple packaging changes, such as offering shorter or longer first terms, can have a dramatic impact on TCV.
When analyzing trends in Total Contract Value, be sure to take into account any changes in packaging or pricing that could have a significant impact on the results of the analysis. If possible, it is also advisable to analyze “normalized” contract values to get a more accurate picture.
Renewal bookings are another metric that you can look at for a customer. This shows the total contract value over multiple contracts.
To maintain consistency, it is important to clearly define and calculate TCV. This will ensure all consumers are on the same page, and that all members of the board are in agreement.
What is total contract value? TCV is a metric that measures the total revenue generated by a customer throughout their relationship with your company. It’s an important number for sales teams to track because it directly impacts their quotas. If you’re not sure how to calculate TCV, don’t worry – we’ve got you covered. Just follow the steps in this blog post and you’ll be well on your way to understanding this critical metric.