ACV

What's ACV in finance and SaaS?

Annual Contract Value (ACV) is the average annualized value of all active customer contracts. ACV can be described as the average customer ARR, and is often used to describe the size of a contract for a SaaS business.

ACV

Total contract value (excluding one-time fees)

Number of years in contract

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Unlike TCV (Total Contract Value), ACV is annualized and standardized across all contracts.

ACV Calculator

Total Contract Value (Recurring Only) Contract Length (Years)

How is ACV calculated?

ACV is the sum of all of the active, non-annualized contract values and reflects non-recurring revenue in the total value. Additionally, ACV reflects mid-contract changes by changing the total contract value to reflect the expansion or contraction.

We can calculate ACV from ARR, non-recurring revenue, and mid-contract changes.

ACV from ARR

If a customer is paying $150,000 ARR for 3 years, the ARR is $150,000. Since ARR is already an annual figure, the ACV is also $150,000.

Calculating ACV with Non-Recurring Revenue

Let’s take a customer that has purchased the following products:

Product	Start Date	End Date	Type	Total Amount
Annual Platform Fee	January 1	December 31	Subscription	$18,000
User Seats	January 1	December 31	Subscription	$6,000
Starter Implementation	January 1	April 30	One-Time	$1,000

ACV = $18,000 + $6,000 = $24,000

Note that ACV does not include the amount for the non-recurring Starter Implementation product.

ACV with Mid-Contract Change

For contracts that have a co-termed change during an active contract, ACV will be adjusted to count the revenue of the change, not the run rate. With contractions and expansions in ARR, we can represent the total changes in ACV.

For example, if a customer starts with 10 users seats for $100 per month for 12 months, the ACV will be equivalent to 10 seats x $100 x 12 months, or $12,000.

If the customer decides to purchase 10 more user seats after 4 months on the same contract, the expansion amount will be $10 seats x $100 x 8 remaining months, or $8,000. This $8,000 expansion plus the original $12,000 yields a total ACV of $20,000. We can represent the ARR change and the ACV in the following way:

Metric	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Starting ACV	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000
ARR Change	--	--	--	--	$8,000	--	--	--	--	--	--	--
Ending ACV	$12,000	$12,000	$12,000	$12,000	$20,000	$20,000	$20,000	$20,000	$20,000	$20,000	$20,000	$20,000

The ARR change in May indicates the change in the contract value, and the ACV expands by the ARR expansion amount.

What's a typical ACV range in SaaS?

ACV range in SaaS varies by target market. SMB-focused SaaS companies typically have lower ACVs, while mid-market and enterprise SaaS companies often have higher ACVs due to larger contract sizes and more complex offerings.

SMB SaaS: $50 per user per month × 10 users = $6,000 ACV
Mid-market SaaS:$2,000 per month platform license = $24,000 ACV
Enterprise SaaS:Multi-seat licenses with premium support and advanced features often result in $100,000+ ACV per customer.

What's the difference between ACV vs TCV?

ACV vs TCV compares annual contract value to total contract value. ACV measures the yearly recurring value, while TCV includes the full value of the contract over its entire term, including multi-year commitments and one-time fees.

For example:

Contract length 3 years
Annual subscription price: $30,000 per year
One-time onboarding fee: $10,000
ACV:$30,000 per year

TCV = $90,000 recurring + $10,000 one-time fee = $100,000

What's net new ACV?

Net new ACV measures growth by subtracting lost ACV from churn and downgrades from the ACV generated through new sales and expansions. It shows whether revenue growth from sales activity exceeds revenue losses.

Net New ACV

Total contract value of new deals − One-time fees

Contract length in years

Net New ACV Example

New customer ACV: $400,000
Expansion ACV: $150,000
ACV lost to churn: $120,000
ACV lost to downgrades: $30,000
Contract length: 2 years

Net New ACV = ($400,000 + $150,000) − ($120,000 + $30,000) / 2 = $200,000

This represents the net increase in annualized contract value generated during the period after accounting for churn and downgrades.

How do you calculate ACV Growth?

ACV growth measures changes in annual contract value over time, reflecting new deals, expansions, churn, and downgrades. It is commonly used to evaluate the effectiveness and sustainability of revenue growth.

ACV growth

= 100 x

Total ACV (end of period) − Total ACV (beginning of period)

Total ACV (beginning of period)

ACV Growth Example:

Total ACV at beginning of quarter: $2,000,000
Total ACV at end of quarter: $2,300,000

ACV growth = ($2,300,000 − $2,000,000) × 100 ÷ $2,000,000 = 15%

This indicates that total annual contract value increased by 15 percent over the quarter after accounting for new deals, expansions, churn, and downgrades.

What's the difference between gross ACV vs net ACV?

Gross ACV includes all new and expansion contract value without accounting for churn. Net ACV accounts for churn and contractions, providing a clearer view of sustainable growth.

For example:

New and expansion ACV closed: $500,000
ACV lost to churn and downgrades: $150,000
Gross ACV: $500,000
Net ACV: $350,000 after accounting for lost revenue

Frequently Asked Questions

What are ACV bookings?

ACV bookings represent the total annual contract value of new contracts signed during a period. This typically includes new customers and expansions but excludes renewals unless otherwise defined.

Why is ACV an important SaaS metric?

ACV is an important SaaS metric because it links sales performance to recurring revenue outcomes. It helps teams analyze deal size, revenue concentration, and go-to-market effectiveness without being distorted by billing terms.

How is ACV used as a sales metric?

As an ACV sales metric, ACV is used to assess pipeline quality, quota coverage, and deal mix. Many sales teams prioritize ACV over deal count to align incentives with revenue impact.

What's ACV in finance?

ACV in finance stands for annual contract value. It represents the normalized yearly value of a customer contract, focusing on recurring revenue and excluding one-time or non-recurring fees. Finance teams use ACV to compare contracts consistently and assess revenue impact across different deal structures.

Is there a difference between ACV in SaaS and finance?

ACV in SaaS and ACV in finance aren't fundamentally different, but the context and use can differ.

In both cases, ACV stands for annual contract value, which is the value of a customer contract that happens every year. ACV is often used by finance teams to make sure that revenue analysis is consistent, help with forecasting, and look at the mix of contracts across the business. In SaaS, ACV is used more often to look at the size of deals, how well sales are doing, and how to divide customers into groups in a subscription model.

The definition stays the same, but SaaS teams may use ACV more often at the deal and pipeline level, while finance teams usually use it for planning and reporting.

What's the difference between ACV and annualized contract value?

ACV and annualized contract value generally describe the same concept. Both refer to normalizing recurring contract revenue to a yearly amount to enable consistent comparison across contracts.