Value Metric
Annual Contract Value (ACV)
Annual Contract Value (ACV) is the average yearly revenue generated per customer contract, normalized to one year.
What is Annual Contract Value (ACV)?
Annual Contract Value normalizes the revenue of a customer contract to a single year, making deals of different lengths comparable. A three-year, $300,000 contract has an ACV of $100,000. ACV is a core sales and finance metric that shapes how you price, sell, and support.
It is closely related to — but distinct from — total contract value (TCV), which is the full value of the contract over its entire term.
How to calculate it
ACV = Total Contract Value ÷ Contract Term in Years
- Total Contract Value
- Full value of the contract over its term (excluding one-time fees)
- Contract Term
- Length of the contract in years
Worked example
A 3-year contract worth $300,000 has an ACV of $300,000 ÷ 3 = $100,000 per year.
What good looks like
- Sales-motion signalContext-dependent
There is no universal target — ACV varies enormously by market. Low ACV suits self-serve/PLG motions; high ACV justifies a sales-led motion with dedicated support.
Why it matters
ACV determines what kind of go-to-market you can afford. A low ACV demands an efficient, self-serve funnel, while a high ACV can support field sales, onboarding, and success teams. Tracking ACV over time reveals whether you are moving upmarket, and it anchors sales targets and quota design.
How to improve Annual Contract Value (ACV)
Move upmarket or tier pricing
Introduce higher tiers and enterprise features that raise the value — and price — of larger contracts.
Bundle and cross-sell
Package complementary products so each contract carries more annual value.
Frequently asked questions
What is the difference between ACV and ARR?
ACV is the annualized value of a single contract. ARR (annual recurring revenue) is the aggregate annualized recurring revenue across all customers. Roughly, ARR is the sum of the ACVs of your active recurring contracts.
What is the difference between ACV and TCV?
TCV (total contract value) is the full value of a contract over its entire term, including one-time fees. ACV normalizes the recurring portion to one year, so a multi-year deal has a higher TCV than ACV.