Weighted ACV is a metric used in business to measure the annualized value of a contract, subscription, or customer relationship. Weighted ACV considers the different values or weights associated with various types of contracts or subscriptions within a business. It allows firms to assign more importance to higher-value contracts when calculating an enterprise’s total average contract value.
It is calculated by adding the sum of the weighted average of the contract values. For example, you have three customers. Customer 1 has a contract value of $50,000, while the other two have a contract value of $10,000 each. Adding up these numbers (50k + 10k + 10k), you get a total contract value of $70,000. You weighted ACV is calculated as follows: ($50,000 * ($50,000 / $70,000)) + ($10,000 * ($10,000 / $70,000)) + ($10,000 * ($10,000 / $70,000)). This gives you a WACV of $38,570. It is much more nuanced than the $23,333 you would get with the typical ACV metric.
ƒ ((Contract Value 1 * Percentage of Total Contract Value) + (Contract Value 2 * Percentage of Total Contract Value))
Annual Contract Value
Annual Recurring Revenue
Customer Concentration
ACV (Annual Contract Value) is the annualized value of a contract or subscription, while WACV (Weighted Annual Contract Value) factors in the impact of different contracts by assigning weights based on predefined criteria.
It is better to have a balanced customer concentration. Too low may indicate a lack of focus, while too high may pose risks if a significant customer's spending decreases. A balanced approach mitigates risks and supports sustainable growth.