What is Annual Contract Value (ACV)?
Nexa Consultancy | Startup & Finance Glossary
Average Contract Value (ACV) is a metric that represents the average revenue generated from a single customer contract over a one-year period. It is a key metric for B2B and SaaS businesses to understand the typical size of their deals.
For Startups: Tracking ACV helps a startup understand its target market and sales efficiency. A growing ACV can indicate that the company is successfully moving upmarket and selling to larger customers, or that it is effectively upselling and cross-selling to its existing customer base.
For SaaS: ACV is often looked at in conjunction with Customer Acquisition Cost (CAC). A high ACV can justify a longer and more expensive sales process (e.g., enterprise sales), while a low ACV necessitates a low-touch, more automated sales model.
Calculation: ACV = Total Value of Contracts / Number of Contracts
Example: A SaaS company signs 10 new contracts in a year with a total value of ₹50 Lakhs. Its ACV is ₹5 Lakhs.