Formula
TCV = recurring fees over the committed term
+ one-time fees
+ committed usage minimumsWorked example
Illustrative figures. A three-year contract with annual price steps and a one-time implementation fee of $25,000.
| Contract year | Recurring fees | One-time fees |
|---|---|---|
| Year 1 | 80,000 | 25,000 |
| Year 2 | 100,000 | – |
| Year 3 | 120,000 | – |
| Total | 300,000 | 25,000 |
TCV = 300,000 + 25,000 = 325,000
ACV = 300,000 ÷ 3 = 100,000
ARR in year 1 = 80,000
The committed term
Include only the non-cancellable period. A three-year contract with a right to terminate for convenience without substantive penalty after year one has a committed term of one year. This mirrors the contract term used for revenue recognition under ASC 606 and IFRS 15. Some companies quote TCV over the full stated term instead; state which.
TCV, ACV and bookings
TCV is the basis for TCV bookings. Recurring TCV divided by the committed term in years gives ACV.
Amendments and renewals
An amendment adds its incremental committed value. A renewal is a new commitment with its own TCV.
What Revnewed provides
Each contract has a total contract value field in its own currency, alongside its contract number, contract type (month-to-month, annual, multi-year or perpetual) and line items. The value is stored as entered, shown in the contracts table and included in CSV exports; Revnewed does not derive it.
Common misstatements
- Cancellable years included
- Value the customer can walk away from is not committed.
- TCV presented as ARR or revenue
- TCV spans the whole term and includes one-time fees.
- Usage estimates included
- Only committed minimums belong in TCV.