What is annual contract value?
Annual contract value, or ACV, is the recurring revenue a contract represents in a single year, averaged across its term. A three-year deal worth 300,000 dollars in recurring revenue has a 100,000 dollar ACV.
ACV is how SaaS teams talk about deal size. It strips out contract length and one-time fees, so two deals of different lengths can be compared on equal terms.
The ACV formula.
For one contract: ACV = total recurring contract value divided by the term in years. Across a book of business: ACV = total ARR divided by the number of contracts. Exclude one-time fees, which belong in TCV, not ACV.
Use the recurring value only. A setup fee inflates the contract but is not annual recurring revenue.
A worked example.
A customer signs a three-year deal worth 300,000 dollars in recurring revenue. ACV is 300,000 divided by 3, which is 100,000 dollars a year.
What is a good ACV?
ACV reflects your segment more than your health. A self-serve product may run a few hundred dollars of ACV; an enterprise platform may run six figures. Neither is better in the abstract. The signal is the direction: rising ACV across new cohorts means you are winning larger accounts.
ACV pairs with TCV and ARR. ACV is the annual slice, TCV is the whole deal, and ARR is the sum of ACV across active contracts.
How to grow your ACV.
Move upmarket, package higher tiers, or bundle more value into each contract. Larger accounts and multi-product deals lift ACV.
Winning bigger accounts starts with reaching them. Organic search that targets the problems enterprise buyers research brings higher-ACV prospects into the pipeline. See how we build enterprise SaaS pipeline.