Total Contract Value (TCV)
Date created: Mar 31, 2023 • Last updated: Mar 31, 2023
What is Total Contract Value?
Total Contract Value (TCV) is the sum value of a contract over its life cycle. It takes into account not only the initial purchase price, but also any additional costs such as installation and maintenance fees that may be incurred over time. To calculate TCV, these costs must be added together to get an estimate of the total contract value over its life.
Total Contract Value Formula
How to calculate Total Contract Value
For example, if you purchase a piece of equipment for $100,000 and then have to pay a maintenance fee of $2,000 every year for five years, your total contract value would be $110,000.
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More about Total Contract Value
Total Contract Value (TCV) is calculated using the following formula: TCV = Initial Purchase Price + Installation and Maintenance Fees + All Other Costs over Time. This includes any additional fees or other expenses that are incurred throughout the life of the contract.
TCV is often used by companies to compare potential vendors and contracts, as well as to track long-term performance of current contracts. It can also be used to budget for future projects and investments. By calculating the TCV of a contract, businesses can get a better understanding of the true cost involved.
To improve TCV, businesses should review their contracts regularly to ensure that all costs are accounted for and accurately estimated. They should also develop strategies to minimize additional costs such as installation fees or maintenance expenses. Furthermore, companies can look into new technologies such as cloud-based services or subscription models which may be more cost effective in the long run.
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