SaaS Metrics and KPIs

What Is TCV vs ACV in SaaS?

Author: Yura Luzhko, SEO Manager

Reviewed by: Guy Zinger, Chief Revenue Officer (CRO)

What Is TCV vs ACV in SaaS?

Total Contract Value (TCV) is a SaaS metric identify the total value of a customer contract over its entire duration.

Annual Contract Value (ACV) is a SaaS metric pinpointing the average contract value per year.

Both these measurements are relevant for SaaS companies because they measure the revenue gained and offer a comprehensive picture of the subscription revenue performance.

What Is the Difference Between ACV and TCV?

The difference between TCV and ACV is found i the period measured. While TCV looks at the entire contract value, ACV splits that value into yearly chunks.

The reason why SaaS businesses need both is that they need both short and long-term perspectives to assess revenue performance.

Aspect	TCV	ACV
Time-frame	Complete contract term	Yearly value
One-time fees	Included	Excluded
Multi-year contracts	Can impact TCV	ACV is not affected
Forecasts	Supports total revenue tracking	Helps in annual planning
Sales reporting	Focuses on deal value	Highlights recurring revenue

How Do ACV and TCV Differ in SaaS and Subscription Models?

TCV and ACV are two SaaS metrics that monitor subscription revenue from two perspectives.

Subscription company trend to prioritize ACV because it allows them to monitor yearly performance.

Investors prefer TCV because it provides a long-term vision and helps in assessing consistency.

The differences between the two metrics generally show up in the following areas:

Multi-year enterprise contracts
Deals with onboarding or implementation fees
Discounted long-term agreements
Usage-based pricing tiers
Annual renewals vs long-term commitments

How Do You Calculate ACV?

To calculate ACV, you need to divide the total recurring contract value by the number of years in the contract.

Formula:
ACV = Total Recurring Revenue ÷ Contract Length (years)

Example:

Two-year subscription worth $50,000 (recurring only)
ACV = $25,000

Keep in Mind:

Avoid considering one-time fees
ACV is the preferred SaaS metric for comparing deals with different contract lengths.

How Do You Calculate TCV?

TCV determines the total recurring revenue over the entire contract value, including one-time fees.

Formula:
TCV = (Recurring Revenue × Contract Term) + One-Time Fees

Example:

Two-year recurring revenue = $50,000
Onboarding fee = $5,000
TCV = $55,000

How Do Discounts, One-Time Fees, and Contract Length Impact ACV and TCV?

Discounts, one-time fees, and contract lengths impact ACV and TCV in various ways:

Discounts: Lower the annual price, affecting both metrics
One-time fees: Increase total contract value but not recurring revenue
Longer terms: Increase TCV; ACV stays stable if annual pricing remains unchanged
Mid-contract upgrades: May increase both ACV and TCV

Conclusion

TCV and ACV represent two SaaS metrics that look at recurring revenue from different perspectives. However, they are equally important.

Subscription businesses prefer looking at ACV because it provides a structured measure of performance, whereas investors or the financial team track TCV for its long-term perspective.

Key takeaways