Finance
ACV (Annual Contract Value)
The average annualised revenue per customer contract. Calculated as total contract value divided by the contract length in years.
In plain English
A 2-year deal for $20,000 has an ACV of $10,000. A 1-year deal for $8,000 has an ACV of $8,000. ACV normalises deals of different lengths so you can compare and forecast.
Example
20 new customers this quarter: 5 at $50k/yr (3-year deals), 10 at $20k/yr (1-year), 5 at $8k/yr (1-year). Total ACV per customer mix: ($50k×5 + $20k×10 + $8k×5) / 20 = $24.5k average ACV.
Formula
ACV = Total Contract Value / Contract Length (years)
Why it matters
ACV drives sales-team structure. Sub-$5k ACV usually means inbound + self-serve; $5k-25k means inside sales; $25k-100k means full-cycle AEs; over $100k means enterprise sales motion. Mismatching team to ACV is the most expensive go-to-market mistake.
Common mistakes
- Mixing one-time fees into ACV — setup fees and pro services aren't recurring
- Confusing ACV with TCV (Total Contract Value) — multi-year deals report differently
- Mixing pre-paid and monthly customers into the same ACV — misrepresents real cash collection