Annual contract value
AN-yoo-ul KON-trakt VAL-yoo
The annualized value of a single customer contract. Tells you about individual deal size, while ASP tells you the average across all deals.
ACV is the annualized value of a single contract. If a customer signs a three-year deal worth $300k total, the ACV is $100k. ACV tells you about individual deal size. ASP (average selling price) tells you the average across all deals.
When someone says "ACV is down," they mean customers are signing smaller contracts. This could signal a shift in customer mix (more SMB, less enterprise), increased discounting, or a move toward shorter contract terms. Any of those is worth investigating.
ACV matters because it determines how you can afford to sell. If your ACV is $200k, you can afford a field sales team, custom demos, and months-long sales cycles. If your ACV is $5k, you need self-serve or inside sales. The cost of your sales motion has to fit inside the deal size.
Examples
Comparing deal sizes.
Deal A: three-year contract, $300k total. ACV is $100k. Deal B: one-year contract, $80k. ACV is $80k. Deal A is larger on a per-year basis.
ACV trending down.
Last quarter, average ACV was $75k. This quarter it is $55k. The sales team is closing more deals but they are smaller. Are you moving downmarket or discounting more?
Using ACV to choose a sales motion.
At $2k ACV, you need self-serve. The unit economics do not support a human sales process. At $50k ACV, inside sales works. At $200k+ ACV, you can justify field sales with in-person meetings and custom proposals.
In practice
Read more on the blog
Related terms
The average revenue per deal closed. Tells you whether you are selling to the right segment at the right price.
The annualized value of your active subscription contracts. The heartbeat metric of every SaaS business.
A signed deal. The total value of a customer contract at the time they commit to buy. Not the same as revenue.
The total dollar value of a contract over its entire term, including subscription fees, services, and one-time charges.
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