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TCV Definition for SaaS

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What is Total Contract Value (TCV) in SaaS?

TCV Definition for SaaS

Like other SaaS metrics, TCV (Total Contract Value) can mean different things to different people.

Taken literally, TCV is total of actual revenues for a customer. It is typically expressed as a Gross nor Net value.

However, TCV is often confused with CLV. CLV has a well-understood and fairly ubiquitously accepted definition, which is as an estimate of the projected total value of a customer over its lifetime.

Note the distinction - TCV is actual/historic and CLV is an estimated projection.

So, how best to project the value of a customer? Seventh grade algebra holds the answer and it lies in the basic math applied to converging geometric series. If you can brush off the dust and remember some basic algebra, you should be able to follow these two wikipedia entries that explain it in sufficiently painful detail

The challenge of course is not in understanding the algebra, it is in the calculation of churn or renewal rate. Once you are able to accurately measure these numbers, a seventh grader can provide the CLV totals for you.
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