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.

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. 

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

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

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

Приклад:

• Two-year subscription worth $50,000 (recurring only)

• ACV = $25,000

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

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

Приклад:

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

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