Definition
Contract value is the value of a contract over its term, often expressed as TCV or ACV.
Why it matters
Contract value informs sales forecasting, but it can diverge from ARR and recognized revenue.
Pricing implications
Discounts and concessions reduce contract value and margin. Use contract value alongside retention metrics to avoid over-optimism.
Measurement tips
Track contract value by segment and term length.
Checklist
- Separate TCV and ACV definitions clearly.
- Exclude non-recurring services if you report ARR.
- Track contract value by plan and segment.
- Normalize multi-year contracts for comparisons.
- Reconcile contract value with billing systems.
- Document discount policies.
- Avoid mixing contract value with recognized revenue.
- Use contract value for sales pipeline reporting.