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How to Calculate Monthly Contract Value (MCV) for SaaS and Improve Purchasing Decision Forecasting

MCV is an important metric for measuring the revenue that a company can expect to receive from a customer in a given month.

Monthly Contract Value (MCV) is the average monthly revenue expected from a customer contract, calculated by dividing the Total Contract Value (TCV) by the number of months in the contract. For example, a $1,200 contract over 12 months produces an MCV of $100 per month. MCV measures the normalised monthly revenue contribution of any fixed-term SaaS deal.

 

To calculate MCV for a SaaS company, you will need to know the following:

  1. Total contract value (TCV): the full monetary value agreed in the contract.

  2. Number of months in the contract: This is the length of the customer's contract, in months.


Once you have these numbers, you can use the following formula to calculate MCV:

 

MCV = Total Contract Value (TCV) ÷ Number of months in the contract

 

 

For example, if a SaaS company signs a customer to a 12-month contract with a total contract value of $1,200, the MCV would be:

 

MCV = $1,200 ÷ 12 = $100

 

 

This means the company can expect to receive $100 in revenue from that customer each month.

 

MCV is a forward-looking metric that reflects the revenue the company is expected to receive, based on the terms of its customer contracts. Actual MRR (Monthly Recurring Revenue) may differ from MCV due to changes in the number of paying customers and the ARPU.

How does MCV compare to MRR and ARR?

Metric Definition Best Used For SaaS Example
MCV (Monthly Contract Value) Average monthly revenue expected based on the total contract value and duration Understanding the monthly value of longer-term contracts A £12,000 annual deal equals £1,000 MCV
MRR (Monthly Recurring Revenue) Actual recurring revenue generated each month Tracking current revenue performance and retention trends £950 MRR reflects real-time recurring income post-churn
ARR (Annual Recurring Revenue) Total recurring revenue projected over 12 months High-level revenue forecasting and investor reporting £1,000 MRR x 12 = £12,000 ARR

 

Monthly Contract Value (MCV) FAQs

When should SaaS companies track MCV?
MCV is most useful during deal reviews, sales forecasting, and when structuring long-term contracts. It helps teams assess the true monthly value of complex, multi-year agreements.

Does MCV apply to usage-based or variable pricing models?
MCV works best with fixed, recurring contract terms. For usage-based or consumption models, revenue can fluctuate, so pairing MCV with actual usage data or trailing MRR provides a more complete revenue picture.

How does MCV support purchasing decision alignment?
Understanding MCV ensures your sales team and the buyer are clear on the revenue implications of their purchasing decision. It helps frame ROI discussions and positions your solution within the prospect’s financial planning.

Is MCV used by finance teams, or just sales?
Both. Sales uses MCV to qualify and prioritise deals, while finance relies on it for revenue forecasting, investor reporting, and growth modelling—especially in subscription-based businesses.

What metrics should be used alongside MCV?
For complete revenue visibility, SaaS teams should track MCV alongside:

  • MRR (Monthly Recurring Revenue) — for actual monthly revenue

  • ARR (Annual Recurring Revenue) — for yearly revenue projections

  • Churn and Expansion rates — to account for customer lifecycle changes

 

For further guidance on revenue metrics and GTM strategy, visit AriseGTM.