TCV Meaning and Examples
Total Contract Value refers to the total amount of money a customer pays over the lifetime of their contract with your business. When calculating TCV, you’ll include the recurring revenue from a contract as well as any additional, one-time fees.
For clarity, let’s look at an example before moving on to show you how to calculate TCV for your business.
Let’s say you’re a business that needs a subscription for a new project management software. So, you sign up for a 3-year contract for software that costs $650 per month. When you sign up, you also have to pay an onboarding fee of $500 and decide to buy an add-on service to the software for a flat fee of $1200.
The total value of your contract with this software company would be $25,100. How did we get that number? Easy. Just follow the formula in the next section.
How to Calculate Total Contract Value
To calculate TCV, all you have to do is use this simple formula:
TCV = MRR x Number of Months the Contract Is Effective + One-Time Fees
So, going back to our example in the previous section, we can calculate $2,510 by applying the TCV formula like this:
$25,100 (TCV) = $650 (monthly fee) x 36 (months) + $500 (onboarding fee) + $1200 (add-on fee)