The annual contract value (ACV) is the average annual revenue generated from a customer’s contract in a subscription-based business model, such as software-as-a-service (SaaS).
ACV is typically calculated for one year of a customer’s contract and excludes any one-time fees, like setup or onboarding costs.
How do you calculate annual contract value (ACV)?
To calculate ACV, you can follow this formula:
ACV = (Total Contract Value) / (Contract Length in Years)
For example, if a customer signs a two-year contract worth $12,000, the ACV would be:
ACV = ($12,000) / (2 years) = $6,000
ACV is an important metric for subscription-based businesses, as it provides insights into the average revenue generated per customer contract on an annual basis. This information helps companies evaluate the effectiveness of their sales and marketing efforts, forecast future revenue, and make informed decisions about pricing, product development, and customer acquisition strategies.