Average Contract Value (ACV)

ACV normalizes contracts of different lengths into an annual figure, making them easier to compare. It is usually calculated by dividing a contract's total value by its length in years, excluding one-time fees, and then averaging across contracts.

For example, a three-year contract worth 90,000 in total has an ACV of 30,000. If a company's contracts average 30,000 a year, that is its ACV.

ACV helps companies decide how to sell. Products with low ACV often need inexpensive, self-service sales channels, while high-ACV products can justify dedicated sales teams and long sales cycles.

ACV is not an accounting measure, so definitions vary. Some companies use the term to mean annual contract value for a single contract rather than an average. Comparing ACV over time shows whether the company is winning larger deals. Investors often consider it alongside customer acquisition cost and retention.