Annual contract value (ACV) and total contract value (TCV) are widely used revenue metrics in software-as-a-service (SaaS) and subscription-based businesses. They are two different views of the same customer contracts and significant for SaaS analytics. With 98% of finance and revenue teams acknowledging forecasting accuracy issues, understanding the difference between these metrics is important. Confusing ACV with TCV can distort forecasts, sales incentives, and growth.

Below, we’ll explain the differences between ACV and TCV, how they affect growth predictions and planning, and how each can be used by various teams to boost business performance.

What’s in this article?

• What is ACV vs. TCV?
  
• How do ACV and TCV differ in SaaS and subscriptions?
  
• When should teams use ACV instead of TCV?
  
• How do ACV and TCV affect revenue forecasting and growth planning?
  
• How can sales, finance, and customer success teams use ACV and TCV?
  
• How should businesses refine ACV and TCV?
  

What is ACV vs. TCV?

Annual contract value and total contract value are two different metrics for tracking how much revenue a specific customer provides for a SaaS business over a set time.

What is ACV?

ACV expresses how much revenue a customer contract delivers in one year. ACV takes contracts of different lengths and puts them on the same annual basis so you can compare them clearly.

What is TCV?

TCV represents the total revenue a contract is expected to generate over its lifetime. TCV captures the full financial scope of a customer agreement, making the metric especially useful for evaluating long-term commitments and total bookings.

How do ACV and TCV differ in SaaS and subscriptions?

ACV zooms in on annual impact, while TCV zooms out to show total commitment. Here’s how they differ:

• Time frame: ACV reduces every contract to a yearly value so deals of different lengths can be compared cleanly. TCV reflects the full contract term, which makes longer commitments visibly larger.

• Purpose: ACV is meant to facilitate planning and comparison, especially when teams need to understand annual revenue performance. TCV is designed to show the total size of what has been sold, regardless of when the revenue is recognized.

• Treatment of one-time fees: ACV typically excludes setup fees, onboarding, and other one-off charges to focus on repeatable revenue. TCV includes all contract components, including recurring and nonrecurring fees.

• Mapping to SaaS metrics: ACV maps closely to recurring revenue metrics such as annual recurring revenue (ARR). TCV behaves more like a bookings metric.

• Signals: ACV shows revenue sustainability and deal quality by year. TCV shows customer commitment and the long-term scope of a contract.

• Risk profile: ACV reflects revenue you can reasonably expect within a year. TCV assumes the contract will run its full course, which introduces more uncertainty if customer churn or downsizing occurs.

When should teams use ACV instead of TCV?

Overall, ACV is the better choice for SaaS and subscription businesses. That metric strips away contract-length quirks and keeps the focus on how revenue accrues year to year.

ACV is a better choice for these scenarios:

• Comparing deals with different terms: ACV makes a one-year deal and a three-year deal directly comparable by putting both on an annual basis.

• Setting sales quotas and performance targets: Annual goals map cleanly to ACV because both operate on the same time frame. This keeps sales teams focused on yearly revenue rather than inflated totals.

• Measuring growth over time: ACV is better suited for year-over-year analysis because changes clearly show whether deal quality is improving or eroding.

• Evaluating go-to-market effectiveness: When a business compares segments, regions, or channels, ACV reveals where the business is gaining higher-value customers consistently. TCV can obscure this by overemphasizing contract length.

• Fitting with recurring revenue models: ACV fits naturally alongside recurring revenue, subscription planning, and other SaaS metrics. It reflects the repeatable revenue base that supports long-term growth.

• Prioritizing customer investment: Teams can use ACV to determine how much effort a customer relationship can reasonably justify each year. This helps balance service levels with economic reality.

How do ACV and TCV affect revenue forecasting and growth planning?

ACV and TCV shape how businesses think about the future in different ways. ACV anchors short-term planning in reality, while TCV focuses on long-term commitments and capacity.

Here’s how you’ll want to use these metrics for a range of forecasting and growth planning activities:

• Annual revenue forecasting: ACV is the cleaner input for forecasting because it fits how businesses typically plan spending, head count, and operating budgets.

• Growth quality assessment: Rising ACV often signals healthier revenue growth because each new customer contributes more revenue per year. Flat or declining ACV can indicate pressure on pricing, smaller deal sizes, or shifts toward lower-value segments.

• Long-term revenue visibility: TCV helps you understand how much revenue is contractually committed beyond the next 12 months. This matters for multiyear planning, especially when you’re deciding when to invest ahead of demand.

• Capacity planning: Large TCV commitments often come with long-term service or support obligations. Knowing the TCV helps you deliver on what has been sold without overextending.

• Risk management: ACV reflects near-term revenue that’s more likely to materialize. TCV assumes contracts will last their full terms, which introduces more uncertainty and needs to be balanced against churn and expansion risk.

How can sales, finance, and customer success teams use ACV and TCV?

ACV and TCV mean different things depending on who’s looking at them. Each team uses these metrics to answer the questions that matter most to its role. Here’s how sales, finance, and customer success teams can use them:

Sales teams

ACV helps sales leaders compare deals fairly by removing contract length from the equation. TCV shows the full size of a win and often factors into deal strategy, multiyear negotiations, and commission design. Comparing both lets teams see whether locking in longer contracts measurably increases total value, even if annual value is slightly lower.

Sales quotas usually fit better with ACV because they reflect ARR impact. That metric keeps reps focused on deal quality rather than longer contracts that look bigger on paper. TCV is useful for understanding total pipeline value and the scale of committed business. ACV reveals whether the pipeline is improving in terms of annual revenue strength.

Finance teams

ACV is central to budgeting, forecasting, and recurring revenue modeling. That metric suits annual planning cycles and supports more reliable revenue projections. TCV helps finance teams understand total contractual commitments and future cash inflows, and the metric feeds into deferred revenue tracking and multiyear financial planning for accurate SaaS revenue forecasting.

Customer success teams

ACV is often the most actionable metric for customer success because it reflects the annual value of each account. That helps teams prioritize retention effort, segment customers, and allocate support resources proportionally. Higher ACV accounts typically receive more proactive engagement because the annual revenue at risk is greater. TCV provides context for long-term relationships and helps teams manage multiyear commitments responsibly.

How should businesses refine ACV and TCV?

ACV and TCV are useful only when they are tracked consistently and fine-tuned. Here’s how to start:

• Standardize definitions: Decide what counts toward ACV and TCV, and apply those rules across every deal.

• Automate where possible: Use billing and contract systems to calculate ACV and TCV directly from live contract data. This minimizes manual errors and updates the average for changes such as expansions and renewals.

• Monitor trends: Track how average ACV and average TCV change over time. Direction matters more than any single number and often reveals shifts in deal quality or customer behavior.

• Improve ACV: Focus on expansion, pricing discipline, and customer segmentation to increase annual value per customer. Growth in ACV often compounds across sales efficiency, retention, and unit economics.

• Use TCV to encourage commitment: Longer contract terms and broader deal scopes can raise total contract value. Evaluate multiyear incentives carefully to ensure total value increases without undermining long-term flexibility.

• Review at renewals: Every renewal is a chance to reassess annual value and total commitment. Treat contract changes as times to adjust pricing, scope, and expectations to minimize customer churn.

• Balance ambition with realism: ACV reflects near-term revenue you can plan around. TCV reflects longer-term intent and should be weighed against churn risk and delivery capacity.

Stripe Sigma makes it easier for businesses to gain insight, track trends, and analyze patterns in their data down to the transaction level. Learn more about Stripe Sigma, or get started today.