What is Total Contract Value (TCV) in SaaS?
The Total Contract Value (TCV) metric summarizes the contractual value of fully executed term contracts. Total Contract Value can differ from Bookings in that Bookings may be defined to include only certain items and only the first year of a multi-year agreement, whereas Total Contract Value is not typically limited to the first year, nor would it typically except certain transaction types.
Simple packaging changes, such as offering shorter or longer first terms, can have a dramatic impact on Total Contract Value. When evaluating trends in Total Contract Value, take care to note any changes in packaging or pricing that could significantly impact the analysis, and where possible, analyze “normalized” contract values.
Total Contract Value metrics can include renewal bookings, and when examined for specific customers, can include the total value of the contract over many terms.
As with most subscription metrics, it is important to define the rules and calculations for total contract value to ensure the measurements are made consistently and to ensure the consumers (including board members) clearly understand and agree with the definitions and calculations.
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