Annual Contract Value (ACV)
Annual Contract Value (ACV) is The annualized revenue value of a customer contract, normalizing multi-year or monthly deals to a consistent yearly figure for pipeline and revenue analysis.
ACV normalizes deal sizes for consistent comparison. A $120K 2-year deal and a $5K/month deal both have a $60K ACV. This standardization is essential for pipeline reporting, quota setting, and compensation calculations.
ACV vs ARR vs TCV
- ACV (Annual Contract Value): Single deal, annualized. Used for individual deal analysis.
- ARR (Annual Recurring Revenue): Sum of all active ACVs. Company-level metric.
- TCV (Total Contract Value): Full contract amount including multi-year terms. $120K for that 2-year deal.
Why RevOps Cares
ACV drives territory design (equal opportunity distribution), quota setting (realistic targets), compensation (commission rates often vary by ACV band), and forecasting (weighted pipeline calculations). Getting ACV calculation wrong cascades through every downstream metric.
Track ACV trends over time — rising ACV with stable win rates indicates a successful upmarket motion. See RevOps KPIs for how ACV fits into the broader metrics framework.
Frequently Asked Questions
How do you calculate ACV?
ACV = Total Contract Value ÷ Contract Length in Years. For month-to-month deals, ACV = Monthly Recurring Revenue × 12.
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