SaaS financial metrics: ACV vs ARR vs TCV explained

Four acronyms describe the same revenue from different angles. Mixing them up makes a business look two or three times bigger — or smaller — than it is. Here is what each one means, how to calculate it, and which one actually predicts whether you can pay next month's bills.

Quick comparison

1. MRR and ARR: the size of the engine

MRR counts only predictable subscription revenue, normalised to a month. An annual plan billed at $1,200 upfront contributes $100 of MRR, not $1,200. ARR is simply MRR × 12. One-off setup fees, consulting and hardware never belong in MRR or ARR — they are not recurring.

MRR = sum of normalised monthly subscription fees
ARR = MRR × 12

2. ACV: the size of one customer

ACV annualises a single contract. A three-year deal worth $90,000 in recurring fees has an ACV of $30,000. Report ACV when you want to talk about deal quality — rising ACV means you are moving upmarket, falling ACV usually means discounting.

ACV = recurring contract value ÷ contract length in years

3. TCV: the size of the whole deal

TCV is everything the customer committed to across the full term, recurring plus one-off. The same three-year deal with a $15,000 implementation fee has a TCV of $105,000 but still only $30,000 of ACV. TCV is the largest and most flattering number, which is exactly why it is the one most often quoted without a label.

TCV = (ACV × contract years) + one-off fees

Worked example
  Recurring: $2,500/mo for 36 months = $90,000
  Setup fee: $15,000
  ACV = $90,000 ÷ 3 = $30,000
  TCV = $90,000 + $15,000 = $105,000

4. Why none of these pay your bills

Every metric above is a commitment metric, not a bank statement. Stripe and Paddle take their fee, some customers refund, annual plans arrive as one lump and then nothing for eleven months, and roughly 30% of profit needs to be set aside for tax. That is why a founder with $120,000 of ARR can still run out of money.

The number that decides whether you survive is net burn — cash out minus cash actually collected — and the runway it implies.

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