TCV is an important metric for measuring the revenue a company can expect to receive over the lifetime of the contract.
Total Contract Value (TCV) is the total value of a customer contract in a SaaS (Software as a Service) company. It is a measure of the revenue that the company can expect to receive over the lifetime of the contract.
To calculate TCV for a SaaS company, you will need to know the following:
Average revenue per user (ARPU): This is the average amount of money that each customer pays per month.
Customer lifespan: This is the length of time that a customer remains a paying subscriber.
Once you have these numbers, you can use the following formula to calculate TCV:
TCV = ARPU * Lifespan
For example, if a SaaS company has an ARPU of $100 and a customer lifespan of 36 months, the TCV for each customer would be:
TCV = $100 * 36 = $3,600
This means that the company can expect to receive $3,600 in revenue from each customer over the lifetime of their contract.
It's important to note that TCV is a forward-looking metric that reflects the revenue that the company is expected to receive in the future, based on the terms of its customer contracts. Actual MRR (Monthly Recurring Revenue) may differ from TCV due to changes in the number of paying customers and the ARPU.
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