How do you calculate Total Contract Value (TCV) in SaaS?

Total Contract Value (TCV) is the total value of a customer contract in a SaaS (Software as a Service) company. It is a measure of the revenue that the company can expect to receive over the lifetime of the contract.

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

Average Revenue per User (ARPU): The average monthly recurring revenue generated per customer. Note that in contract-based TCV calculations, ARPU may also reflect annual or multi-year billing intervals.
Customer lifespan: The expected duration of the customer relationship, expressed in the same time unit as ARPU (e.g. months). This is often estimated from historical churn data or set by the contract term length.

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

TCV = ARPU × Lifespan Where: • ARPU = Average Revenue per User per billing period • Lifespan = Total number of billing periods in the contract

For example, if a SaaS company has an ARPU of $100 and a customer lifespan of 36 months, the TCV for each customer would be:

TCV = $100 * 36 = $3,600

This means that the company can expect to receive $3,600 in revenue from each customer over the lifetime of their contract.

TCV is a forward-looking metric based on contracted terms — it reflects expected revenue, not guaranteed revenue. Actual Monthly Recurring Revenue (MRR) may differ from TCV projections due to customer churn, upgrades, downgrades, or changes in the number of active subscribers. TCV also differs from Annual Recurring Revenue (ARR), which measures expected revenue over a single year, and from Customer Lifetime Value (CLV/LTV), which factors in profitability rather than just revenue.

If you have any other questions feel free to contact us at Arise GTM

How do you calculate Total Contract Value (TCV) in SaaS?

TCV is an important metric for measuring the revenue a company can expect to receive over the lifetime of the contract.