Total contract value or TCV is a crucial SaaS metric used to determine the amount of revenue that a contract will earn. It also considers recurring expenses like hiring costs, service charges, etc. SaaS companies can use this metric to estimate how much profit can be earned from a single contract.
TCV = (Monthly Recurring Revenue x Contract Term Length) + Contract Fees. How does the TCV formula work in practice? Suppose Company A offers subscription model services with different pricing and plan options. Plan 1 is priced at $125/month for a year's contract and Plan 2 is priced at $1,200/month for a 2-year period along with a $300 onboarding charge. Thus, the TCV for each of these will be:Plan 1 = ($125 x 12) = $1,500Plan 2 = ($1,200 x 24) + $300 = $29,100