What is Annual contract value (ACV)? Definition, Formula & Benchmarks

What is annual contract value (acv)?

ACV is the revenue a customer contract is worth over one year, normalized to an annual figure. It strips multi-year deals down to a per-year number so you can compare contracts of different lengths on equal footing. It's a go-to metric for sizing deals and measuring sales efficiency.

Formula

ACV = Total Contract Value ÷ Contract Term in Years

Total Contract ValueFull value of the contract over its entire term
Contract Term in YearsLength of the contract expressed in years

Worked example

A 3-year, $90,000 contract has a TCV of $90,000 and an ACV of $30,000 per year.

Why it matters for fast-growing companies

ACV lets you compare a one-year deal against a three-year deal without distortion, which matters for sales quotas, commission plans, and forecasting. Definitions vary. Some teams exclude one-time fees, others include them, so lock down your rule before comparing reps, cohorts, or your numbers to a benchmark.

Frequently asked questions

How is ACV different from ARR?+

ACV is the annualized value of a single contract; ARR is the annual recurring revenue across your entire customer base. Think of ACV as per-deal and ARR as company-wide. Summing the ACV of all active recurring contracts gets you close to ARR, though definitions and one-time fees can create differences.

Should ACV include one-time fees?+

It depends on your convention, and both approaches are common. Many teams keep ACV to recurring subscription value only and track setup or implementation fees separately, so the number reflects durable annual revenue. Whatever you choose, apply it consistently across every deal and report.

Annual contract value (ACV)