Annual contract value (ACV) is a SaaS metric that breaks down the total value of a customer’s contract into an average value per year. Specifically, it normalizes the total value of the contract over its lifespan to show you the average revenue you get from that subscription agreement each year.
It is calculated by adding the total of every contract value and dividing it by the total number of customers. For example, let’s assume a SaaS business that has 100 customers. The first 30 customers have signed a 3-year contract with a contract value of $60,000 or $20,000 / year, another 40 have signed up a 2-year contract with $50,000 or $25,000 per year, and the remaining 30 on a 1-year contract at $30,000.
The First Year Annual Contract Value = ( (20,000 x 30) + (25,000 x 40) + (30,000 x 30) ) / 100 customers is $25,000
The Second Year Annual Contract Value = ( (20,000 x 30) + (25,000 x 40) ) / 70 customers is $22857
The Third Year Annual Contract Value = (20,000 x 30) / 30 customers Year 3 ACV = $20,000
ƒ Sum(Value of all Customer Contracts for 1 year) / Count(# of Customers under Contract)
Annual Contract Value (ACV) = Normalized Total Contract Value (TCV) ÷ Contract Term Length
Annual Contract Value doesn’t have a standard benchmark, as the high and low contract values vary depending on the business model. However, according to OpenView SaaS Metrics Survey, SaaS companies must target ACV above $1,000
Annual Recurring Revenue
Average Revenue Per Account
Average Selling Price