Sales
Advertisements
Related Guides
Related Topics

# 4 Examples of Annual Contract Value

,
Annual contract value, or ACV, is a measure of the value of a customer that includes both recurring revenue and one-time fees normalized to a yearly revenue figure. The following are illustrative examples.

## Irregular Payments

A customer commits to a \$30 million contract to build an office building. The length of the project is 3 years and payments are made based on project milestones at different stages of the project. Annual contract value is the total value of the contract divided by the duration of the contract in years.
 ACV = contract value / duration = \$30 million / 3 years = \$10 million

## Recurring Revenue

A customer commits to paying a monthly recurring fee of \$1000 for an internet leased line. The annual contract value is the value of 12 monthly payments.
 ACV = monthly recurring revenue × 12 = \$1000 × 12 = \$12,000

## One-time Fees

Annual contract value differs from annual recurring revenue by its ability to incorporate irregular payments and one time fees. A one time fee may be included in the annual contract value for the year in which it occurs. Alternatively, a one time fee can be averaged over the length of the contract. This all depends on the purpose of your annual contract value measurement and the nature of the fee itself. The following are two alternative methods for calculating annual contract value for monthly recurring revenue of \$1000 with a \$3000 initial fee on a three year contract.
Method #1
Include the initial fee in first year annual contract value.
 First year ACV = (MRR × 12) + one time fees = (\$1000 × 12) + \$3000 = \$15,000
Method #2
Average the initial fee over the length of the contract.
 ACV = (MRR × 12) + (one time fee / contract length) = (\$1000 × 12) + (\$3000 / 3) = \$11,000

## Averages

Annual contract value is often expressed as an average for all customers. In many cases, this can simply be calculated by dividing revenue by the total number of customers. This may only include revenue that originates with a particular type of customer contract. Revenue used in this calculation may be either trailing revenue or a forecast of 12 month forward revenue based on signed contracts. For example, a software as a service firm may have revenue of \$40 million from software subscriptions from 100,000 customers.
 ACV = revenue / # customers = \$40,000,000 / 100,000 = \$400
 Overview: Annual Contract Value Type Definition A measure of the value of a customer that includes both recurring revenue and one-time fees normalized to a yearly revenue figure. Related Concepts

## Sales

This is the complete list of articles we have written about sales.
Account Management
Ambiguity Effect
Anchoring
Bargaining Power
Bias For Action
Bliss Point
Bogey
Business Relationships
Buyer Persona
Call To Action
Choice Architecture
Churn Rate
Closing Techniques
Complex Sales
Concept Selling
Conversion Rate
Cross-Selling
Curiosity Drive
Customer Lifetime Value
Customer Motivation
Customer Needs Analysis
Customer Persona
Customer Profitability
Customer Relationships
Customer Retention
Customer Satisfaction
Customer Service
Deal Desk
Decoy Effect
Default Effect
Excuses
Fear Of Missing Out
Figure Of Merit
Final Offer
Hard Selling
Ideal Customer Profile
Influencing
Lead Generation
Lead Qualification
Low Ball
Marketing Channels
Message Framing
Needs Identification
Negotiation Process
Nudge Theory
Objection Handling
Opportunity
Overchoice
Personal Selling
Post-Sales
Presales
Pricing Strategy
Product Differentiation
Product Knowledge
Promotion Strategy
Prospecting
Puffery
Remarketing
S&OP
Sales
Sales Activities
Sales Analysis
Sales Channels
Sales Data
Sales Development
Sales Efficiency
Sales Force Automation
Sales Goals
Sales Management
Sales Metrics
Sales Model
Sales Objectives
Sales Pipeline
Sales Planning
Sales Process
Sales Quotas
Sales Risk
Sales Skills
Sales Strategy
Scarcity Marketing
Soft Selling
Solution Selling
Trade Fairs
Upselling
Willingness To Pay
If you enjoyed this page, please consider bookmarking Simplicable.

## Sales Metrics

A list of common sales metrics.

## Attach Rate

Overview of a common marketing and sales metric.

## Sales Conversion Rate

The 3 types of sales conversion rate with examples.

## Sales Efficiency

An overview of sales efficiency with an example.

## Contribution Margin Calculation

An overview of contribution margin with example calculations.

## Cost Per Lead

The formula for cost per lead with calculation examples.

## Sales Goals

The common types of sales goal with examples.

## Win Rate

The definition of win rate with calculation examples for sales proposals, sales revenue and advertising bids.

## Gross Margin

An overview of gross margin with calculation examples.

## Revenue Per Employee

An overview of revenue per employee including how it is calculated and used.

## Monthly Recurring Revenue

A definition of monthly recurring revenue (MRR) with examples.

## Run Rate

The definition of run rate with calculation examples.
The most popular articles on Simplicable in the past day.

## New Articles

Recent posts or updates on Simplicable.
Site Map