Annual contract value (ACV)
Also known as: ACV
In short
Annual contract value (ACV) is the average revenue a single customer contract generates per year. It normalizes contracts of different lengths so you can compare them on one scale.
Teams use ACV to size deals, set quotas, and decide which sales motion fits. It usually covers recurring subscription fees and excludes one-time charges, though definitions vary, so write yours down.
How to calculate ACV
Divide the total contract value by the number of years in the term.
- Formula: ACV = total contract value (recurring portion) / contract length in years.
- Example: Say a customer signs a three-year contract worth 90,000 in subscription fees. The ACV is 30,000.
- One-time fees: Setup or implementation fees are normally left out, or reported separately, so ACV reflects recurring value.
ACV vs. related metrics
- ACV vs. TCV: Total contract value is the whole contract over its full term. ACV is the per-year slice.
- ACV vs. ARR: ACV describes one contract. Annual recurring revenue adds up the yearly recurring value of all active customers.
- ACV vs. average deal size: Average deal size can include one-time items and multi-year totals. ACV is annualized and recurring.
Why ACV matters for GTM
Choosing a sales motion
Low ACV usually supports self-serve or high-velocity inside sales. High ACV can justify field sales, multiple stakeholders, and longer cycles.
Setting acquisition budgets
The amount you can spend to win a customer is bounded by the annual value they bring. A team with a 5,000 ACV cannot run a heavy, enterprise-style outreach process profitably.
Targeting
Comparing ACV by segment shows which industries or company sizes pay more, which feeds your ideal customer profile.
Common mistakes
- Mixing definitions: Some teams include one-time fees and others do not. Pick one rule and apply it consistently.
- Ignoring discounts: Use the contracted price, not the list price.
- Averaging across segments: A blended ACV hides the gap between small and large customers. Report by segment.
Annual contract value FAQs
What is annual contract value (ACV)?
Annual contract value is the average amount of revenue a customer contract brings in each year. It is calculated by dividing the recurring contract value by the number of years in the term, which lets you compare contracts of different lengths.
How do you calculate ACV?
Divide the total recurring contract value by the contract length in years. For example, a two-year agreement worth 60,000 in subscription fees has an ACV of 30,000. Exclude one-time fees unless your team deliberately includes them.
What is the difference between ACV and ARR?
ACV measures the yearly value of a single contract. ARR, or annual recurring revenue, totals the yearly recurring value across all active customers. ARR is a company-level metric, while ACV is a deal-level one.
What is the difference between ACV and TCV?
Total contract value is the full revenue over the whole contract term, including every year. ACV divides that by the number of years. A three-year deal worth 90,000 has a TCV of 90,000 and an ACV of 30,000.
Does annual contract value include one-time fees?
Usually not. ACV is meant to show recurring yearly value, so setup, implementation, and training fees are normally excluded or reported separately. Definitions vary between companies, so document your rule and apply it consistently.
