ACV
Annual Contract Value
Annual Contract Value (ACV) is the average annualized revenue per customer contract. Unlike ARR (company-level metric), ACV measures individual deal size. It helps segment customers, set sales targets, and determine which acquisition channels are worth the CAC.
Customer signs a 3-year contract worth $150,000 in recurring revenue plus $10,000 implementation fee. ACV = $150,000 / 3 = $50,000. The $10,000 fee is excluded from ACV (it's one-time) but included in TCV ($160,000).
ACV is where deal strategy meets economics. A $10K ACV business needs high volume and efficient sales processes. A $100K+ ACV business can afford longer sales cycles and expensive reps. Mixing these in the same go-to-market motion is a recipe for chaos — either you're overspending on small deals or underinvesting in big ones. Track ACV by segment, by sales rep, and by lead source. If one channel delivers 3x the ACV at the same CAC, that's where you double down. Also watch ACV trends: rising ACV with stable deal volume means you're moving upmarket successfully. Falling ACV with rising volume might mean you're discounting too heavily.
Define ItOther Definitions
“Annual Contract Value represents the average annualized revenue per customer contract, excluding one-time fees. It's used to normalize contracts of varying lengths for comparison and planning.”
“ACV measures the average annual revenue from a customer contract. It's calculated by dividing total contract value by the number of contract years.”
“Annual Contract Value normalizes varying contract lengths to a yearly basis, allowing fair comparison between a 6-month deal and a 3-year deal.”
Annual Contract Value calculates the average annualized value of a customer contract, normalizing multi-year and partial-year contracts to a 12-month basis. The formula divides total contract value by the number of contract years. ACV differs from ARR (which measures total company-level recurring revenue) and from TCV (total contract value including one-time fees). ACV is essential for segmenting customers by value, setting sales quotas, and evaluating acquisition channel efficiency. Companies often stratify GTM strategies by ACV tier: self-serve for low ACV, inside sales for mid-market, and field sales for high ACV. Tracking ACV trends reveals whether you're successfully moving upmarket or facing pricing pressure.
MistakesCommon Mistakes
Confusing ACV with ARR — ACV is per-deal, ARR is company-wide
Including one-time fees in ACV — those belong in TCV, not ACV
Not normalizing by contract length — a $120K 2-year deal has $60K ACV, not $120K
Using blended ACV for capacity planning — segment by deal size tier
Ignoring ACV trends — falling ACV often precedes revenue problems
ACV stagnant while CAC rises? Your economics are breaking.
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