ACV vs TCV
ACV normalizes recurring contract value to one year, while TCV captures the full included commitment across the term. They are useful together because a larger booking can come from a longer term, a higher recurring price, or a one-time fee. Those changes have different implications for the business.
Key differences
| Question | ACV | TCV |
|---|---|---|
| What time scale? | One annualized year of recurring fees under this guide’s convention. | The full committed contract term. |
| Are one-time fees included? | Excluded here; disclose if your company uses another convention. | Included when they are part of the contract value. |
| What comparison does it support? | Recurring deal size across different contract durations. | Total commitment, with term and payment schedule shown. |
One scenario, two measures
Hypothetical worked scenario
A fictional customer signs a three-year agreement at $12,000 per year plus $2,000 onboarding. A second customer signs one year at $15,000 with no setup fee.
First contract: ACV $12,000 and TCV $38,000. Second contract: ACV $15,000 and TCV $15,000.
The first contract has the larger total commitment; the second has the larger annual recurring value. A sales ranking changes depending on the intended question.
Which should you use?
- Use ACV when evaluating recurring deal size, acquisition economics, and segment mix. It prevents contract duration from dominating the comparison.
- Use TCV when describing total signed commitment. Show cancellation rights and scheduled billing, because a multi-year booking may be collected over several years.
- For ramped pricing, retain the annual fee schedule as well as average ACV. A first-year discount can make near-term revenue lower than the average annualized amount.
Where comparisons can mislead
- Neither metric is a substitute for an accounting revenue schedule or a cash collection forecast.
- Exclude optional renewals from committed TCV; model them separately as forecasts.
Explore the full guides: ACV and TCV.
Sources and methodology
The references below explain the underlying methods. Our worked scenarios use hypothetical figures; they are not company results or current market benchmarks.
- Stripe: Annual contract value in SaaS
Annualizing the recurring component of a customer contract.
- Stripe: Total contract value
Recurring commitments and one-time contract fees.
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