If you’re in sales you’ve likely heard the abbreviations, TCV, ACV and iACV…but maybe you’re unsure of what they mean. In this article I will explain what each abbreviation means.
TCV = Total Contract Value
Total Contract Value or TCV is a metric that is used to show the total value of a customer’s contract across a period of time, usually a duration of three years but it could be less or more. TCV includes all recurring revenue and other fees that may be associated with a product or service sold through the contract. TCV is a metric used primarily by Software as a Service (SaaS) companies to determine their revenue.
There is a formula associated with calculating the TCV:
Total Contract Value (TCV) = Monthly Recurring Revenue x Contract Term Length) + One Time Fees
ACV = Annual Contract Value
Annual Contract Value or ACV is a metric that is used to show the annual value of a customer contract. This is another metric used by SaaS companies or subscription-based companies.
There is a formula associated with calculating the ACV:
ACV = Total Years in Contract / Total Contract Value (TCV)
iACV = Incremental Annual Contract Value
Incremental Annual Contract Value or iACV is a metric used to show the additional revenue generated from existing customers usually on an annual basis. iACV is often associated with upsell, cross-sell motions as well as contract renewals.
There is a formula associated with calculating the iACV:
Incremental Annual Contract Value (iACV) = Current Year ACV – Previous Year ACV
An Example of TCV, ACV and iACV Working Together
A customer has a 3-year contract worth £100,000 (TCV), there ACV is £33,333 and they’ve decided to renew the contract for another 3 years with the addition of a few new license tiers for their product. The renewal and therefore TCV for the next three years is £130,000 which means that the iACV is £10,000 per year.