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Annual Contract Value (ACV)
The annualized value of a customer contract, normalizing multi-year deals for comparison and trend analysis.
Formula
ACV = Total Contract Value ÷ Contract Length in Years
For monthly contracts: ACV = Monthly Value × 12
Average ACV = Total ACV ÷ Number of Customers
Definition
What is Annual Contract Value?
Annual Contract Value (ACV) normalizes contract values to a yearly basis for comparison. A $36K three-year contract has an ACV of $12K. This lets you compare deals of different lengths and track average deal size trends.
ACV is especially useful for enterprise sales where multi-year contracts are common.
ACV vs ARR
ACV measures individual deal size. ARR measures total recurring revenue. A company might have $1M ARR composed of 100 customers with $10K average ACV.
ACV trends show whether you're moving upmarket (increasing ACV) or expanding volume at lower price points (decreasing ACV).
Using ACV
Track average ACV over time to understand pricing power and market positioning. Segment ACV by customer type, sales rep, and acquisition channel. Higher ACV often justifies higher CAC and longer sales cycles.
Example
Deal analysis:
- 3-year contract total: $90,000
- ACV = $90,000 ÷ 3 = $30,000
Multi-year comparison:
- Deal A: $50K/year for 1 year = $50K ACV
- Deal B: $120K total for 3 years = $40K ACV
Deal A has higher ACV despite lower total value.
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