Table of contents
Contract Value
TL;DR
Contract Value refers to the total dollar amount agreed upon in a customer contract. In SaaS, it’s a fundamental metric used to evaluate deal size, forecast revenue, and segment accounts. Whether you’re tracking ACV (Annual Contract Value) or TCV (Total Contract Value), understanding contract value helps align pricing, sales motions, and customer expectations.
What is Contract Value?
Contract Value represents the financial commitment made by the customer at the point of signing a SaaS contract.
There are two primary forms:
- Annual Contract Value (ACV): The annualized revenue from a subscription contract
- Total Contract Value (TCV): The total revenue from the full length of the contract, including multi-year terms, services, and one-time fees
Example:
A 3-year SaaS contract at $20,000/year =
- ACV = $20,000
- TCV = $60,000
TCV may also include onboarding fees, implementation costs, or support add-ons. ACV is more useful for ARR/MRR-based forecasting.
Why It Matters in B2B SaaS
- It informs revenue forecasting. Larger contracts impact near- and long-term ARR planning
- It supports segmentation. High-contract-value accounts may warrant white-glove onboarding or customer success resources
- It aligns comp and incentives. Many sales teams tie quotas or accelerators to ACV/TCV
- It helps model CAC and LTV. You can’t evaluate customer acquisition costs without knowing contract value
- It enables pricing feedback loops. Analyzing trends in contract value reveals pricing effectiveness and discount patterns
How to Measure Contract Value
Step 1: Pull contract data from your CRM or billing system
Step 2: Separate recurring revenue from one-time fees
Step 3: Use ACV for year-over-year analysis
Step 4: Use TCV for understanding full deal scope and revenue impact
Step 5: Segment by:
- Customer segment (SMB, MM, ENT)
- Contract length
- Sales motion (inbound, outbound, channel)
- Product or plan type
Best Practices
- Standardize your definitions. Ensure ACV and TCV are consistently applied across finance, sales, and RevOps
- Track both new and expansion deals. Upsells can significantly shift ACV over time
- Watch for hidden erosion. High TCV may mask heavy discounting or backloaded value
- Pair with contract length. A high TCV over five years may not be as attractive as a strong ACV over one
- Benchmark by segment. Use historical data to set targets and forecast realistic deal sizes by customer type
Final Thought
Contract Value is not just a number, it’s a reflection of how well your sales team is selling value, how mature your pricing strategy is, and how aligned your customers are with your long-term vision. In SaaS, where every dollar counts, contract value helps you maximize not just bookings, but impact.
FAQs
What’s the difference between ACV and TCV?
ACV is the annualized contract value. TCV includes the full contract duration and any non-recurring elements. Both matter, but serve different purposes.
Should I include services revenue in Contract Value?
Yes for TCV, but not always for ACV. ACV typically reflects only recurring subscription revenue.
How is Contract Value used in comp plans?
Many SaaS orgs use ACV to calculate quota attainment, commissions, and accelerators—especially for new logo deals.
Does Contract Value impact customer success resourcing?
Absolutely. Higher-value customers often receive more onboarding support, QBRs, and proactive engagement.
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