# Total Contract Value (TCV)

Total Contract Value (TCV) is a critical metric that measures how much a contract will be worth over its lifetime. It’s particularly useful for subscription model businesses (e.g., SaaS platforms) as it provides an insight into the amount of revenue a business can expect to earn from an individual customer once they’ve signed a contract or license agreement. It also accounts for recurring revenue and fees, making it a highly accurate indicator of future profitability.

TCV differs from Annual Contract Value (ACV) because TCV includes all payments across the lifetime of a contract whereas ACV is only concerned with annualized figures. It’s often the case that one-time fees and other figures are excluded from ACV too, whereas they’re always included in TCV calculations. Knowing average TCV alongside other metrics such as **Customer Acquisition Cost** (CAC) helps leaders to develop better long-term strategies and optimize their profitability.

It can be calculated using the following formula:

**TCV = (Monthly Recurring Revenue x Contract Length) + One-time Fees**

[Source: Recur](https://www.profitwell.com/recur/all/total-contract-value)

## Total Contract Value (TCV) Explained:

## FAQs

**What is Total Contract Value?**  
Total contract value is the total revenue a company expects to earn from a contract over its entire duration, including all one-time fees, recurring charges, and any additional costs such as implementation or maintenance.

**How does TCV differ from Annual Recurring Revenue (ARR)?**  
TCV includes the total value of a contract over its entire duration, whereas ARR only accounts for the annualized recurring revenue component.

**How is TCV calculated?**  
TCV is calculated by summing all sources of revenue from a contract over its full term. This includes initial setup fees, monthly or annual subscription fees, and any anticipated add-on purchases.