Annual Contract Value (ACV)
What is ACV?
ACV is annual contract value, the annualized revenue value of a customer contract.
ACV puts an individual recurring contract on an annual basis so contracts of different durations can be compared. This guide uses recurring fees only. That convention is especially useful when a large first invoice combines a subscription with implementation work or other one-time charges.
Also known as: Annual Contract Value
How to use it
- Read the signed service schedule and separate recurring subscription charges from one-time fees.
- Add recurring fees over the committed term and divide by the contract duration in years. Convert a partial-year term to the matching fraction of a year.
- Record the annualized recurring value alongside term length, payment timing, renewal date, and any cancellation rights. For ramped contracts, also keep the annual schedule.
Worked example
Hypothetical worked scenario
A fictional customer signs a three-year subscription with $12,000 recurring fees each year and a $2,000 one-time onboarding fee.
Recurring contract value = $12,000 × 3 = $36,000. ACV = $36,000 ÷ 3 = $12,000. Including onboarding, TCV is $38,000.
The $38,000 booking cannot be compared directly with a one-year $15,000 subscription to decide which has higher recurring annual value. ACV provides the comparable annual view.
What the result tells you
Use ACV to understand deal mix, not just the average deal. Show term length and implementation effort when evaluating sales productivity. A higher ACV may require a longer sales cycle or more delivery work, so the annualized amount alone does not establish better economics.
Assumptions and common mistakes
- Companies differ on whether they include one-time fees. State the convention before comparing ACV figures.
- A three-year deal with rising annual prices may have an average ACV that differs from the first-year recurring value.
- ACV is a contract measure; ARR describes a company’s recurring base at a date. Do not sum expired or future contracts into current ARR.
Compare related measures
Frequently asked questions
How do I annualize a six-month subscription?
Under the recurring-only convention, divide the recurring fee by 0.5 years. A $6,000 six-month subscription annualizes to $12,000, without asserting that renewal is guaranteed.
Does signing a longer term increase ACV?
A longer term at the same annual recurring price increases total contract value, but does not increase ACV.
Sources and methodology
The references below explain the underlying methods. Our worked scenarios use hypothetical figures; they are not company results or current market benchmarks.
- Stripe: Annual contract value in SaaS
Annualizing the recurring component of a customer contract.
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