# SaaS

Annual Recurring Revenue

## Detailed Description

ACV Growth Rate or Annual Contract Value Growth Rate is a metric used for measuring the average contract value over a time frame compared to a previous time frame. Most businesses use it to measure the year-over-year growth in the annual contract value.

## How To Calculate

It is calculated by comparing the difference between the ACV for a timeframe and the ACV for the previous time frame and dividing it by the ACV for the previous time frame. For example, if a SaaS company had an ACV of \$20,000 in the previous year and has increased it to \$30,000 in the current year, the company’s ACV Growth Rate is (\$30,000 – \$20,000) / \$20,000, which is 50%.

## Formula

“ƒ (Sum(ACV end of period) – Sum(ACV beginning of period))/Sum(ACV beginning of period)
ƒ (Sum(ACV end of period)/Sum(ACV beginning of period) – 1)”

## Benchmark

The Annual Contract Value (ACV) growth doesn’t have a standard benchmark and can vary based on the business model and the growth stage where the company stands. However, analysts use a 100% or higher growth rate as the benchmark for early-stage SaaS companies. For mid-stage and late-stage SaaS companies, it is 50% to 100% and 20% to 50%, respectively.

## Related Metrics

MRR Growth Rate
Annual Recurring Revenue
Annual Contract Value

## FAQ's

Average ACV is calculated using the total contract value or annual recurring revenue (ARR) of all contracts within a timeframe and dividing them by the total number of contracts. The formula for calculating the average ACV is Average ACV = Total Contract Value / Total Number of Contracts

ACV KPI is used by SaaS businesses to assess the health of their subscription business, identify trends, and make data-driven decisions. It accounts the average value of customer contracts, customer acquisition cost (CAC), churn rate, etc.

SaaS companies' average Annual Contract Value (ACV) can vary widely depending on the industry, target market, pricing strategy, and customer base. Generally, the ACV for SaaS companies can range from a few thousand dollars to hundreds of thousands of dollars.

To calculate ACV, you need to use the following formula ACV = Total contract value / Number of years