What Are ACV, ARR, TCV, and MRR?

Four acronyms dominate every SaaS finance conversation: ACV, ARR, TCV, and MRR. They all measure revenue, but each one answers a different question. Confusing them leads to misaligned investor conversations, flawed forecasts, and pricing decisions built on the wrong foundation.

Here is the simplest way to think about each one:

• ACV (Annual Contract Value) measures the annualized revenue of a single customer contract.
• ARR (Annual Recurring Revenue) measures the total annualized recurring revenue across all customers.
• TCV (Total Contract Value) measures the full revenue value of a contract over its entire term.
• MRR (Monthly Recurring Revenue) measures the total recurring revenue normalized to a monthly view.

ACV and TCV are deal-level metrics. ARR and MRR are company-level metrics. That distinction matters more than most founders realize, especially when fundraising or building financial models.

ACV — Annualized value of one contract | Per deal | Annual | Sales performance, pricing analysis

ARR — Total annualized recurring revenue | Company-wide | Annual | Valuation, fundraising, growth tracking

TCV — Total value of one contract | Per deal | Full contract term | Deal sizing, cash flow forecasting

MRR — Total monthly recurring revenue | Company-wide | Monthly | Operations, burn rate, short-term planning

ACV (Annual Contract Value): Definition and Formula

Annual contract value represents the annualized revenue from a single customer contract, excluding one-time fees. It normalizes deals of different lengths into a consistent yearly comparison.

How to Calculate ACV

ACV = Total Contract Value (recurring portion) / Contract Length in Years

For example, a customer signs a 3-year contract worth $180,000 in recurring fees plus a $15,000 onboarding fee. The ACV is $180,000 / 3 = $60,000. The onboarding fee is excluded because ACV focuses on the annualized recurring component.

For month-to-month customers, ACV equals the monthly payment multiplied by 12. A customer paying $2,500 per month has an ACV of $30,000.

When ACV Matters Most

ACV becomes essential for sales-led SaaS companies closing annual or multi-year contracts. It helps founders answer questions like: Are deal sizes growing over time? Is the sales team moving upmarket? How does pricing compare across customer segments?

For a seed-stage startup with $15,000 average ACV, the path to $1M ARR requires roughly 67 customers. If average ACV grows to $40,000 after moving upmarket at Series A, only 75 customers are needed to reach $3M ARR. That difference changes everything about go-to-market strategy, hiring, and support capacity.

ARR (Annual Recurring Revenue): Definition and Formula

Annual recurring revenue is the total annualized value of all active recurring subscriptions. It is the single most important metric for SaaS valuation and the number investors ask about first.

How to Calculate ARR

ARR = MRR x 12

Alternatively: ARR = Sum of all active annualized subscription values.

If a company has 200 customers paying an average of $4,000 per month, MRR is $800,000 and ARR is $9.6M. Only recurring subscription revenue counts. One-time implementation fees, professional services, and usage overages that are not contractually recurring should be excluded.

ARR can also be broken into components that reveal growth quality: new ARR from first-time customers, expansion ARR from upsells and upgrades, and net revenue retention that shows whether existing customers are spending more or less over time.

Why ARR Is the North Star for SaaS

ARR is the benchmark investors use to gauge stage and valuation. General thresholds look something like this:

• Pre-seed: $0 to $100K ARR (product-market fit exploration)
• Seed: $100K to $1M ARR (early traction)
• Series A: $1M to $5M ARR (repeatable growth)
• Series B: $5M to $15M ARR (scaling)

These ranges vary by market and business model, but ARR gives every stakeholder a common language. When a founder says "we are at $2M ARR growing 15% month over month," investors immediately understand the company's stage, trajectory, and approximate valuation range.

TCV (Total Contract Value): Definition and Formula

Total contract value represents the complete revenue value of a customer contract over its full duration, including both recurring fees and one-time charges.

How to Calculate TCV

TCV = (Monthly Recurring Revenue x Contract Length in Months) + One-Time Fees

Consider a customer who signs a 24-month contract at $8,000 per month with a $12,000 implementation fee. TCV = ($8,000 x 24) + $12,000 = $204,000. Unlike ACV, TCV includes those one-time fees because it captures the total economic value of the deal.

For contracts with built-in price escalations (common in enterprise SaaS), TCV should reflect the actual amounts at each period. A 3-year deal at $5,000/month for year one, $6,000/month for year two, and $7,000/month for year three has a TCV of $216,000, not $180,000.

When to Use TCV Over ACV

TCV is most useful when comparing the full economic value of deals, especially when contract lengths vary. Two deals with identical $50,000 ACV look the same on the surface, but one might be a 1-year contract (TCV: $50,000) and the other a 3-year contract (TCV: $150,000). The longer contract provides more revenue certainty and lower churn risk.

TCV also matters for cash flow planning. Startups negotiating annual upfront payments on multi-year deals can use TCV to forecast when cash actually arrives versus when revenue gets recognized.

MRR (Monthly Recurring Revenue): Definition and Formula

Monthly recurring revenue is the total predictable revenue a company earns every month from active subscriptions. It is the most granular and operationally useful of the four metrics.

How to Calculate MRR

MRR = Sum of all monthly recurring subscription amounts

For annual contracts, divide the annual amount by 12 to normalize. A customer on a $24,000 annual plan contributes $2,000 to MRR.

The real power of MRR comes from tracking its components:

• New MRR: Revenue from first-time customers
• Expansion MRR: Additional revenue from existing customers (upgrades, add-ons, seat expansion)
• Contraction MRR: Lost revenue from downgrades
• Churned MRR: Revenue lost from canceled customers

Net New MRR = New MRR + Expansion MRR - Contraction MRR - Churned MRR

A company adding $40,000 in new MRR and $15,000 in expansion MRR while losing $8,000 to contraction and $12,000 to churn has net new MRR of $35,000. That decomposition reveals whether growth is coming from acquisition, expansion, or both.

MRR as the Operating Pulse

While ARR tells the annual story, MRR is what founders should monitor weekly or monthly. It connects directly to burn rate, cash runway, and short-term forecasting. If MRR is $80,000 and monthly operating expenses are $120,000, the company is burning $40,000 per month. That kind of operational clarity does not come from looking at ARR alone.

ACV vs ARR: What Is the Difference?

ACV measures the annual value of one contract. ARR measures the total annual recurring revenue across all contracts. They answer fundamentally different questions.

ACV is a sales metric. It tells founders whether deal sizes are growing, whether the team is moving upmarket, and how pricing changes affect revenue per customer. ARR is a company metric. It tells founders (and investors) how large the business is and how fast it is growing.

The two diverge in important ways. A company with 100 customers and $30,000 average ACV has $3M ARR, but only if every contract is annual. If half those customers are on month-to-month plans, the ARR calculation needs to annualize those monthly amounts separately. ACV also excludes one-time fees that TCV would capture, so a high-ACV deal with significant implementation revenue might generate more total value than the ACV alone suggests.

ARR vs MRR: What Is the Difference?

The math is simple: ARR = MRR x 12. The strategic difference is less obvious.

MRR is the operating metric. It tracks month-to-month changes, connects to cash flow, and reveals short-term trends before they compound into annual patterns. A sudden spike in churned MRR shows up immediately. In ARR, that same signal gets diluted across a 12-month frame.

ARR is the fundraising and valuation metric. Investors think in annual multiples. A company "doing $3M ARR" is instantly understood. Saying "$250K MRR" requires mental math that slows the conversation. For board meetings, investor updates, and benchmarking against peers, understanding both ARR and MRR and when to use each is essential.

Most mature SaaS teams track both: MRR for internal operations and ARR for external communications.

Which Metric Should Founders Track at Each Stage?

Not every metric matters equally at every stage. Early-stage founders tracking all four risk drowning in numbers without gaining clarity. Here is a practical framework:

Pre-seed: Primary: MRR | Secondary: None | Monthly momentum is all that matters. Show the trend line.

Seed: Primary: MRR, ARR | Secondary: ACV | MRR for operations, ARR for investor conversations, ACV for pricing validation.

Series A: Primary: ARR | Secondary: MRR, ACV, NRR | ARR is the primary fundraising benchmark. ACV shows sales efficiency.

Series B+: Primary: ARR | Secondary: All four + NRR, LTV | Full metric stack required. TCV for enterprise pipeline, ACV for segment analysis.

The key principle: start simple and add metrics as the business matures. A pre-seed founder obsessing over TCV calculations for three customers is solving the wrong problem. A Series B company ignoring ACV trends across customer segments is missing critical strategic signals.

Understanding which financial metrics investors actually care about at each stage prevents founders from over-reporting vanity numbers and under-reporting the signals that matter.

Common Mistakes When Calculating SaaS Revenue Metrics

Even experienced finance teams make errors that distort these metrics. Here are the most common ones:

Counting one-time fees in ARR or MRR. Implementation fees, training charges, and professional services are not recurring. Including them inflates ARR and creates a misleading growth picture. If an investor discovers that 15% of reported ARR is actually non-recurring revenue, credibility drops immediately.

Confusing bookings with ARR. A signed contract is a booking. It becomes ARR only when the subscription is active and generating recurring revenue. A $500,000 deal signed in December but starting in March does not count toward December ARR.

Ignoring contraction and churn in MRR. Reporting only new and expansion MRR while burying downgrades and cancellations paints an incomplete picture. Net MRR, not gross MRR, is what determines real growth.

Double-counting ACV and TCV. A 2-year contract worth $100,000 total has a TCV of $100,000 and an ACV of $50,000. Adding both together does not make sense, but it happens more often than it should in pipeline reports.

Annualizing too early. Taking one strong month and multiplying by 12 to report ARR is technically correct but practically misleading. Investors and board members expect ARR to represent a sustainable run rate, not a peak month extrapolated. Building solid unit economics discipline before focusing on top-line growth helps avoid this trap.

Frequently Asked Questions

What is the difference between ACV and ARR?

ACV measures the annualized value of a single customer contract. ARR measures the total annualized recurring revenue across all customers. ACV is a per-deal metric used for sales analysis; ARR is a company-wide metric used for valuation and fundraising.

How do you calculate TCV?

TCV equals the monthly recurring amount multiplied by the contract length in months, plus any one-time fees. For example, a 24-month contract at $5,000/month with a $10,000 setup fee has a TCV of $130,000.

Is MRR the same as monthly revenue?

No. MRR includes only recurring subscription revenue. Monthly revenue can include one-time charges, professional services, and other non-recurring income. MRR is a subset of total monthly revenue that focuses specifically on the predictable, recurring portion.

What is a good ACV for SaaS?

ACV varies widely by market. Self-serve products often have ACVs under $5,000. SMB-focused SaaS typically ranges from $5,000 to $25,000. Mid-market sits between $25,000 and $100,000. Enterprise deals frequently exceed $100,000. The "right" ACV depends on the target customer, sales model, and go-to-market strategy.

For the complete playbook on setting up the financial systems that track these revenue metrics accurately from day one, see our complete guide to bookkeeping for startups.