What Is ACV (Annual Contract Value)?
Also known as ACV, Average contract value (annual)
Annual contract value (ACV) is the average yearly revenue from a single customer contract, excluding one-time fees. It is calculated by dividing the total recurring value of a contract by its length in years. ACV helps B2B teams compare deals of different lengths and decide which sales motion a product can afford.
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Open the toolAnnual Contract Value (ACV) explained
ACV normalizes deals so they can be compared. A three-year $90,000 contract and a one-year $30,000 contract both have an ACV of $30,000. Teams use ACV per deal, and an average ACV across new deals, to track whether they are moving upmarket, discounting more, or closing smaller accounts than planned.
ACV is different from ARR and total contract value. TCV is the full value of the contract over its whole term. ARR is the sum of all active recurring revenue across every customer. ACV focuses on one contract, or the average of many, which makes it the natural unit for sales planning and quota setting.
ACV is one of the strongest signals for go-to-market design. Very low ACV deals usually need self-serve or product-led motions. Mid-range ACV can support inside sales and outbound SDR teams. High ACV justifies field sales, account-based marketing and long multi-threaded cycles. Matching outreach investment to ACV keeps CAC in line with what deals are worth.
Annual Contract Value (ACV) formula
ACV = Total recurring contract value ÷ Contract length in years
- Total recurring contract value
- The full subscription value over the contract term, excluding one-time setup, implementation or training fees.
- Contract length in years
- The committed term of the agreement, such as 1, 2 or 3 years, expressed in years.
Worked example: A customer signs a three-year contract worth $90,000 in subscription fees plus a one-time $6,000 onboarding fee. ACV = $90,000 ÷ 3 = $30,000. The onboarding fee is excluded, so ACV stays $30,000 rather than $32,000.
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Annual Contract Value (ACV) example
A revenue intelligence company closes 20 new deals in a quarter totaling $1,100,000 in recurring contract value across varied terms. After normalizing each deal to a yearly amount, the yearly values add up to $640,000, giving an average ACV of $32,000. Last year's average was $22,000, which confirms its shift to mid-market outbound is landing larger accounts.
How to calculate ACV
Pull the contract terms
Gather the total subscription value and the committed term length for each contract from your CRM or contract system.
Strip one-time fees
Remove setup, onboarding, training and professional services fees. Only count the recurring subscription portion of each contract.
Divide by years
Divide recurring value by the number of years in the term. Use fractions for partial years, such as 1.5 for 18 months.
Average across deals
To get average ACV, sum each deal's ACV and divide by the number of deals. Report it per segment and per channel.
Common mistakes
- Including one-time onboarding or services fees, which inflates ACV and gives a false picture of deal size.
- Confusing ACV with total contract value and overstating the size of multi-year deals in pipeline reports.
- Ignoring ramped pricing, where year one is discounted and later years are higher, without stating the method used.
- Using a single average ACV when segments have very different deal sizes and sales motions.
Annual Contract Value (ACV) FAQ
ACV measures the average annual value of an individual contract. ARR is the total annual recurring revenue across all active customers at a point in time. If you have 100 customers each with an ACV of $20,000, your ARR is roughly $2,000,000.
TCV, or total contract value, is the full value of a contract over its entire term. ACV is that value spread over each year. A three-year $150,000 deal has a TCV of $150,000 and an ACV of $50,000.
Most SaaS companies exclude one-time fees from ACV so it reflects recurring value only. Some include them, so always check the definition when comparing numbers. Whichever you choose, apply the same rule to every deal and say so in reports.
ACV sets how much you can spend to win a deal. Low ACV products rely on self-serve sign-ups and automated onboarding. Higher ACV supports SDR-led outbound, account executives and account-based campaigns, because each closed deal can absorb a larger acquisition cost.