Annual Contract Value (ACV)

What is Annual Contract Value (ACV)?

Annual contract value (ACV) is a metric used primarily in subscription-based businesses and contract-based services to represent the average annual revenue generated from a single customer contract. It helps companies understand the revenue potential and profitability of their customer agreements on an annual basis.

ACV excludes one-time fees like setup costs or onboarding charges and it represents the ongoing value a customer brings each year. By looking at ACV, businesses can compare the value of different customers or contracts, even if they have varying lengths or pricing structures.

Related terms

ASC 606

Accounting Standards Codification (ASC) 606 is a standard framework for revenue recognition developed by the Financial Accounting Standards Board (FASB) for companies operating within the United States.

Accounts Payable Automation

Accounts payable automation (AP Automation) refers to the use of technology and software solutions to streamline and optimize the accounts payable process within an organization.

Accounts Receivable

Accounts receivable refers to the money a business is owed by its customers for products or services that have been delivered but not yet paid for.

Accrual Accounting

Accrual accounting is an accounting strategy that records payments and expenses when they are earned and incurred. This is different from cash accounting where revenue is recognized when it is actually deposited or transferred.

Advanced Billing

Advanced billing refers to sophisticated billing practices or capabilities that go beyond basic billing functionalities to address complex billing scenarios, accommodate specialized pricing structures, and support advanced revenue recognition requirements.

Annual Contract Value (ACV)

Annual Contract Value (ACV) is a metric used to assess the average yearly revenue generated by a single customer contract. It helps businesses understand the annualized worth of their customer base, focusing on recurring revenue streams.