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ACV (annual contract value) measures the annualized value of a contract, usually excluding one-time fees. TCV (total contract value) measures the entire value across the full term, including one-time fees, and we’ll explain how to calculate both and more.
ACV vs. TCV: Key differences explained
To provide a clear understanding of the distinctions between ACV and TCV, here's a comparative chart.
This table sets the baseline. ACV normalizes the value to a single year. TCV sums everything over the full commitment.
Why ACV vs. TCV matters
Leaders compare contracts of different lengths every quarter. ACV gives a common yardstick for those comparisons. It helps you evaluate deal quality without term-length noise. It also supports territory design and quota setting.
TCV answers a planning question. What is the full dollar value of this contract over time? TCV includes onboarding and other non-recurring work. It helps finance model cash and services capacity. It also guides discount and term negotiations.
What ACV stands for (and what ACV means in business)
ACV stands for annual contract value. ACV represents the annualized recurring revenue for a single contract. Teams remove one-time fees. That keeps the signal clean for year-over-year comparisons.
Sales uses ACV to segment the market and set compensation. Finance uses ACV bands to plan headcount and pipeline coverage. Product and pricing teams track ACV to see how packaging changes affect deal size.
Note: Want a deeper dive into ACV? Read our article on ACV in SaaS companies.
What is TCV?
TCV stands for total contract value. TCV captures all revenue tied to a contract during its full term. It includes recurring subscription charges and one-time fees.
TCV helps you evaluate multi-year deals and complex implementations. It shows the payoff from longer terms. It also reveals how much of the contract sits in services versus recurring revenue.
Note: For a related breakdown, see our ACV vs. ARR post.
How to calculate ACV
ACV focuses on recurring value. Use this method to keep it clean:
- Compute TCV first. Sum all recurring charges across the term and add one-time fees.
- Subtract one-time fees. This yields a normalized recurring total.
- Divide by the term in years. The result is ACV.
Example: A three-year contract totals $60,000 with a $6,000 setup fee. Remove the fee to get $54,000. Divide by three. ACV = $18,000.
Note: For a quick overview of related terms, read our ARR meaning blog post.
How to calculate TCV
TCV shows the complete deal value. Use the standard formula:
TCV = MRR × contract term (months) + one-time fees
Example: A 24-month deal at $2,500 MRR with a $5,000 implementation fee. Recurring total is $2,500 × 24 = $60,000. Add $5,000. TCV = $65,000.
Note: See how this relates to other recurring metrics in our MRR vs. ARR article.
Why use ACV in business and sales?
Teams use ACV in business and sales because it helps to guide everyday decisions. Sales leaders compare reps on an even field with ACV bands.
They spot shifts in target segments fast. A rise in average ACV in sales can signal stronger packaging or better qualification. A drop can signal discount pressure or a tilt toward smaller customers.
Finance uses ACV to forecast recurring revenue with less noise. ACV by cohort clarifies which motions pay off. It also informs quota models and capacity plans.
TCV in sales and finance
TCV drives enterprise planning. Sales uses TCV to evaluate term trade-offs and service scope. Finance uses TCV to model booking quality and service utilization.
A higher TCV can justify a longer implementation window. It can also reveal when services outweigh the subscription and strain margins.
ACV vs. ARR (and why teams mix them up)
Many teams blur ACV and ARR. The terms sound close. The purposes differ.
Start with definitions. ACV is the annualized value per contract after you remove one-time fees. ARR is annual recurring revenue for the whole business. ARR sums all active subscriptions on a yearly basis. ACV helps you compare deal sizes.
ARR helps you measure the company’s recurring revenue base.
Use a simple decision tree. If the question is “How big is this deal per year?”, choose ACV. If the question is “How much recurring revenue do we have across all customers?”, choose ARR.
Avoid common traps. Do not add ACV totals to ARR. That double counts.
Do not include one-time fees in ARR. ARR reflects only recurring items. Do not infer growth from ACV alone. ACV can rise while ARR falls if churn offsets larger deals.
Match metrics to audiences. Executives and investors care about ARR trends and net new ARR. Sales leadership cares about ACV distribution and ACV by segment.
FP&A cares about both. FP&A reconciles ACV-based bookings with the ARR roll-forward so the board sees one truth.
Example
Tie examples to practice. A $72,000 three-year deal with a $9,000 setup has an ACV of $24,000 and an ARR impact of $24,000 in the first active year.
ARR ignores the $9,000 because it is not recurring. ACV ignores it for the same reason. TCV is $81,000 because TCV includes the fee and spans three years.
Discounts, one-time fees, and contract length
These rules reduce confusion. They also improve negotiation outcomes:
- One-time fees affect TCV only. Include setup in TCV. Exclude it from ACV to keep comparisons fair.
- Discounts affect both. A lower recurring price reduces ACV and the recurring piece of TCV.
- Longer terms widen the gap. TCV grows with each extra month. ACV remains tied to the annual recurring amount.
Extra tip: Use these rules when you weigh a three-year discount against a one-year renewal. You will see the trade-offs in both ACV and TCV.
Contract renewals and expansions
Treat renewals like new terms for ACV math. Annualize the renewal period. Exclude new one-time fees. Recast ACV at renewal so trend lines stay consistent.
Handle expansions with care. If a customer adds seats or usage mid-term, update MRR and recalculate ACV for that reporting period. Consider weighted ACV for the pipeline. Apply stage probabilities to open deals so forecasts stay realistic.
Reporting ACV and TCV clearly
Write definitions once and publish them. Place them in your RevOps handbook and in dashboard tooltips. Consistency removes debate. So remember:
- Finance tracks ACV for annualized trend analysis and cohort views.
- Sales tracks TCV for enterprise coverage and multi-year pipeline planning.
- Operations reconciles both with MRR and ARR reports to avoid double-counting.
This alignment prevents board-meeting confusion. It also speeds up planning cycles.
Practical examples
Real numbers make the logic stick. Use these two cases in onboarding and manager training.
Example A: Different terms, same ACV
- Deal 1: $1,500 MRR for 12 months, no fees → TCV = $18,000. ACV = $18,000.
- Deal 2: $1,500 MRR for 36 months + $4,500 setup → TCV = $58,500. ACV = $18,000.
Takeaway: ACV holds steady. TCV grows with terms and fees.
Example B: Multi-year discount
- Three-year term at $21,000 per year + $3,000 setup → ACV = $21,000. TCV = $66,000.
Takeaway: The discount lowers ACV. The longer term increases TCV.
Common mistakes and quick fixes
Teams stumble when definitions drift or reports mix scopes. Use the checks below to prevent rework.
Mistake 1: Mixing ACV and ARR on one chart
Why it happens: Teams want a single dashboard for “revenue.”
Why it is harmful: ACV is a per-contract measure. ARR is a business-level measure. The axes do not align.
Quick fix: Split the views. Keep ARR in a roll-forward with new, expansion, contraction, and churn. Track ACV by segment and by rep in a separate view.
Mistake 2: Including one-time fees in ACV
Why it happens: Teams pull TCV and forget to normalize it.
Why it is harmful: ACV becomes inflated and trends lose meaning.
Quick fix: Remove setup and training from the ACV calculation. Keep those items in a services or TCV report.
Mistake 3: Treating TCV as guaranteed revenue
Why it happens: TCV feels definitive once a contract is signed.
Why it is harmful: Plans overstate cash and capacity.
Quick fix: Model TCV with risk factors. Use stage-weighted assumptions for future start dates. Track logo health in renewals.
Mistake 4: Ignoring term effects in discounts
Why it happens: Teams evaluate a discount without the term multiplier.
Why it is harmful: You may accept a discount that drains ACV with little gain in TCV.
Quick fix: Run both numbers. Compare ACV loss to TCV gain. Decide based on payback, service load, and renewal odds.
Mistake 5: Inconsistent definitions across tools
Why it happens: CRM, billing, and BI use different fields and filters.
Why it is harmful: Finance and sales present different “truths.”
Quick fix: Publish a one-page glossary. Lock fields and filters in each tool. Add tooltips with the exact formula.
Mistake 6: Using ACV alone to judge growth
Why it happens: ACV is easy to average and compare.
Why it is harmful: ACV can rise while ARR stalls due to churn.
Quick fix: Pair ACV with ARR trends. Show ACV bands next to ARR roll-forwards. Highlight churn and contraction in the same period.
FAQs
1. What does the TCV acronym mean?
The TCV acronym means total contract value. It is the sum of all revenue in the contract term, including one-time fees.
2. What is ACV in SaaS companies?
ACV in SaaS companies is the annualized recurring revenue per contract. Teams use it to compare deal sizes and plan quotas.
3. What is TCV in sales?
TCV in sales represents the total value of a deal. It includes setup and services when they are part of the contract.
4. How to calculate ACV?
Calculate ACV by subtracting one-time fees from the TCV and dividing by the term in years.
5. Can ACV be higher than TCV?
Yes, ACV can be higher than TCV if the term is under a year. ACV shows value per year. However, TCV adds up the whole term. For example, 1 month at $1,000 per month → ACV $12,000, and TCV would be $1,000.
Use Orb to operationalize ACV and TCV with accurate billing data
Orb equips your team to define billing metrics, model contracts, and test pricing so that ACV and TCV reflect real product usage and plan terms. Here’s how Orb helps:
- Define billing metrics without code. Use the Orb SQL Editor or a visual editor to turn raw usage events into billable metrics.
- Decouple usage data from pricing logic. Orb RevGraph keeps usage data separate from pricing logic so invoices remain accurate as pricing evolves.
- Run pricing simulations. Orb Simulations uses historical data to preview revenue and usage outcomes before launch. Finance and product make more informed decisions together.
- Reduce billing errors. Orb ingests and tracks raw event data at scale and with high accuracy. Invoices also include a full audit trail.
- Integrate your stack. Direct integrations keep usage and revenue data synced across your CRM, accounting, and data warehouse.
Explore our pricing options to find a plan that fits your exact needs, and explore Orb Simulations to see how pricing changes affect ACV bands and TCV by segment.
