Calculate Total Contract Value and Monthly Recurring Revenue
Monthly Recurring Revenue (MRR) is a key metric for subscription businesses. It denotes the amount of revenue that a company might expect to receive monthly. Total Contract Value (TCV) is the sum of all recurring and one-time charges that a company will receive from a subscription.
Usage charges though recurring charges aren't considered.
When you add a product to a subscription, Subscription Management calculates the MRR and TCV for the product based on the applicable term and any applied discounts.
Subscription Management uses the following equation to calculate MRR:
MRR = Total recurring charge amount, divided by the number of months in the subscription term.
Here are some examples of how MRR and TCV are calculated in Subscription Management:
Example 1:
Consider a product called Analytics Subscription that's added to a subscription for a term of 1 year. The product has a monthly charge of $1000 and a charge adjustment has been applied that gives a 50% discount for the first three months.
Total number of months = 1 x 12 = 12 months
Total recurring charges collected = 0.5 x 1000 x 3 + 1000 x 9 = 10500
MRR = 10500/12 = 875
TCV = $10500Example 2:
Consider a product called CX Subscription that's added to a subscription for a term of 10 months. The product has a quarterly charge of $5000.
Total number of months = 10 months
Total recurring charges collected = 5000 x 3 + 5000/3 = 16667.67
MRR = 16667.67/10 = 1666.67
TCV = $16667.67Example 3:
Now let’s consider that a product called HCM Subscription is added to a subscription for a term of 1 year and 23 days. The product has a yearly charge of $20000.
Total Number of Months: 12 x 1 + 23/31 = 12.742
Total recurring charges collected: 20000 + 20000/12*23/31 = 21236.56
MRR: 21236.56/12.742 = 1666.67
TCV: $21236.56