SaaS Total Contract Value (TCV) Calculator

Think of Total Contract Value (TCV) as the entire value of a customer’s subscription. It gives you a clear picture of the financial commitment.

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    Long-Term Planning Benefits

    TCV helps SaaS companies make better long-term investment decisions.

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    Enhanced Revenue Forecasting

    Using TCV, SaaS organizations can improve their future revenue predictions.

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    Understanding Customer Growth

    TCV aids in distinguishing effective strategies, facilitating customer base expansion for SaaS organizations.

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SaaS Total Contract Value (TCV)

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Total Contract Value (TCV) represents the total value of your SaaS contract over its entire duration, including both recurring revenue and one-time fees.

How to Calculate SaaS Total Contract Value (TCV)

To calculate your SaaS Total Contract Value(TCV), follow these steps: 

  1. Identify your Monthly Recurring Revenue (MRR). This is the predictable revenue generated by subscriptions each month. You can typically find this in your financial dashboard or accounting software.
  2. Determine the Contract Term Length. This refers to how long the customer’s contract will last, often recorded in months, like a 12-month contract for a yearly agreement. This detail is specified in the service agreement or customer contract.
  3. Calculate the total recurring revenue by multiplying MRR by Contract Term Length. For instance, if your MRR is $5,000 and the contract term is 12 months, the total would be $60,000 ($5,000 x 12).
  4. Identify any One-time Fees, such as setup fees or onboarding costs. These are generally listed in your sales invoices or contract documents.
  5. Calculate your Total Contract Value (TCV) by adding the total recurring revenue to any one-time fees. For example, if the recurring revenue is $60,000 and one-time fees total $500, the TCV would be $60,500 ($60,000 + $500).

SaaS Total Contract Value (TCV)= Monthly Recurring Revenue (MRR) * Contract Term Length + Any One-time Fees

Understanding SaaS Total Contract Value (TCV)

Ioana Grigorescu

Dezembro 17, 2024

What is Total Contract Value (TCV)?

In a SaaS context, Total Contract Value (TCV) represents the total revenue expected from a customer throughout their contract duration. This includes all initial and recurring payments.

Understanding the TCV is crucial for businesses as it helps in planning financial strategies and forecasting long-term revenue based on the agreements made with customers.

  • Forecast future revenue by capturing the total value of all contracts.

  • Assess customer value to identify profitable segments for strategic growth.

  • Guide strategic planning by focusing on larger contracts and optimized pricing.

Practical Examples of SaaS Total Contract Value (TCV)

  • Example 1: A company signs a 2-year contract with a customer for a monthly subscription of $500. The TCV for this contract would be 2 years * 12 months/year * $500/month = $12,000.
  • Example 2: Another business offers a 3-year contract at $200 per month, including an initial setup fee of $1,000. The TCV here would be: 3 years * 12 months/year * $200/month + $1,000 setup fee = $8,200.
  • Example 3: A company negotiates a 5-year deal with an annual fee of $10,000. Thus, the TCV is simply 5 years * $10,000/year = $50,000.
Time Period New MRR Existing MRR Total MRR TCV TCV Change TCV Change (%)
Quarter 1 $50,000 $150,000 $200,000 $600,000 – –
Quarter 2 $60,000 $160,000 $220,000 $660,000 $60,000 10%
Quarter 3 $75,000 $175,000 $250,000 $750,000 $90,000 13.6%

Trend Analysis: The table demonstrates a positive trend in TCV, with consistent growth in each quarter. This is due to a combination of new MRR and increases in existing MRR, which is reflected in the increase of Total MRR and TCV. The percentage change is also increasing, indicating an accelerating growth rate.

TCV = $250,000 * 3 + $0 = $750,000

Different Ways to Calculate Total Contract Value (TCV)

  • Standard TCV Calculation: Includes the sum of monthly recurring revenue (MRR) and any one-time fees like implementation or setup costs. Use this method to get a straightforward measure of revenue from a customer’s full contract term without adjustments.
  • Incremental TCV: Adds the value of additional services or upgrades purchased by the customer during the contract. Apply this method when customers can modify subscriptions with additional services to reflect the increased value of the contract over time.
  • Discounted TCV: Considers any discounts or special pricing applied to the contract. Use when providing promotional pricing or discounts to customers to represent the actual revenue earned from the contract after such reductions.

How to Improve Your SaaS Total Contract Value (TCV)

  • Upsell and Cross-sell Strategically: Identify opportunities to upgrade current customers to higher-value plans or add complementary products. For example, showcase the added benefits of upgrading from a basic to a premium plan.
  • Negotiate Longer-Term Contracts: Offer discounts for annual or multi-year commitments to secure longer deals and consistent revenue. For instance, provide a 10-15% discount for annual contracts instead of monthly ones.
  • Reduzir a rotatividade: Implement proactive retention strategies by enhancing customer support, engaging with customers regularly, and providing valuable content. Conduct customer satisfaction surveys to identify pain points.
  • Implement Value-Based Pricing: Justify your pricing by clearly demonstrating the value your services bring to the customer. This approach can lead to a higher TCV.
  • Optimize the Onboarding Process: Ensure new clients understand all features and benefits through excellent documentation and dedicated onboarding calls. This can lead to longer-term contracts.

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