Next, you’d tally the total ACV for all your contracts. Five are on three-year contracts worth $60,000 each.

Two are on one-year contracts worth $30,000 each.Let’s say you currently have ten customers with different subscription contracts, and you want to know your average ACV for all ten accounts. If, on the other hand, you’ve signed a lot of customers with a wide range of contract terms, it can be easier to batch your calculations. With this method, you calculate the ACV for each of your accounts individually, then add those amounts together and plug the result into the formula above. There are a couple of ways you can put this calculation to work. Some companies find creative ways to use ACV to make certain data easier to view and digest.įor example, here’s a simple formula you could use to gauge the average ACV of multiple contracts.Īverage ACV = Total ACV of contracts ÷ Number of contracts It should be clear now why the answer to “what is ACV in sales?” is “a quick way to compare various types of recurring revenue accounts”.Ĭalculating ACV across multiple contracts Total contract value = $1200 x 2 years = $2400 If Customer B commits to a more expensive subscription plan on a five-year contract worth $4500, the ACV calculation would look like this.īut what happens if Customer C opts for a two-year, monthly subscription contract at $100 per month? Here’s how you could use the ACV formula to normalize the customer’s contract over one year.Īnnual subscription rate = $100 x 12 months = $1200 If, for example, Customer A signs a three-year annual subscription contract with the total value of the contract sitting at $1500, the ACV calculation would look like this. Here’s the standard formula for calculating ACV for a single account.ĪCV = Total contract value ÷ Number of years Remember, it’s okay if your company or sales department interprets ACV or ARR slightly differently from other organizations so long as everyone involved is on the same page, and calculates them in the same way. But in the meantime, here’s a brief summary of the main differences between them.

We’ll take a closer look at how ACV and ARR are typically calculated in the next section. In practice, these measurements may be used in different ways by different companies – especially ACV (SaaS companies don’t consider ACV to be a standard metric).

Customer Z is on a $2000 annual subscription plan, so their ACV is $2000.

Customer Y is on a $1500 annual subscription plan, so their ACV is $1500.

Customer X is on a $1000 annual subscription plan, so their ACV is $1000.

The biggest distinction when considering ARR vs ACV is that ACV is generally used to measure a single account across multiple years, while ARR measures multiple accounts at the same time.Īs a simple illustration, imagine you currently have three customers. Since ACV and ARR both measure annualized contract values, they’re easily confused despite some key differences. Now that we have a handle on ACV meaning, let’s look at the revenue-driven metric that many consider its counterpart. ACV can help you calculate the average, normalized revenue value of every contract you initiate. Let’s say you’ve recently closed multiple subscription-based deals, involving different periods of time and different dollar amounts, and you’d like a quick estimate of your annual sales. To help clarify the question of what is ACV in sales specifically, here’s a simple use case example.

Better service individual clients, especially those with the greatest long-term potential.

Discover which accounts provide the greatest revenue value.

Compare customers whose contracts differ in type or duration.

You can use ACV to measure the dollar value of all your customer accounts, whether they involve:ĪCV sales calculations are typically based on the recurring revenue generated by a single client or account and don’t normally include initial or one-time setup, training or administrative fees.īecause ACV normalizes your contract amounts, you can use it to: ACV (annual contract value) is a key metric that shows you how much an ongoing customer contract is worth by averaging and normalizing its value over one year.

Difference between bookings and revenue