Calculate Total Contract Value and Monthly Recurring Revenue
This topic describes how to 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 charge though a recurring charge isn't considered.
When you add a product to a subscription, Subscription Management Cloud application calculates the MRR and TCV for the product based on the applicable term and any discounts that may have been applied.
Subscription Management Cloud application uses the following equation to calculate MRR:
MRR= Total Recurring Charge Amount/No of months in subscription term
Here are some examples of how MRR and TCV are calculated in Subscription Management:
Example 1:
Consider a product called Analytics Subscription is 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 which gives a 50% discount for the first three months
Total number of months = 1x12 = 12 months
Total recurring charges collected = 0.5x1000x3 +1000x9 =10500
MRR=10500/12 =875
TCV = $10500
Example 2:
Consider a product called CX Subscription is 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 = 5000x3 +5000/3=16667.67
MRR=16667.67/10=1666.67
TCV=$16667.67
Example 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: 12x1 + 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