ACV (Annual Contract Value)

ACV (Annual Contract Value) is the revenue a customer contract is worth over a single year. It normalizes deals of different lengths to a yearly figure, so a one-year and a three-year contract can be compared on the same footing. Sales teams use ACV to size deals, forecast, and measure how account value changes over time.

How it's calculated

Take the total value of a contract and divide it by its length in years. One-time fees are usually excluded so the number reflects recurring value only.

For example, a $36,000 deal signed for three years has an ACV of $12,000, even though its TCV is $36,000. A separate one-year deal at $12,000 has the same ACV, which is exactly the point — both contribute the same annualized revenue.

ACV vs TCV vs ARR

These three metrics are easy to confuse:

• ACV is one contract's value per year.
• [TCV](/glossary/tcv) is one contract's value across its entire term, including one-time fees.
• [ARR](/glossary/arr) is your whole business's annualized recurring revenue across all active contracts.

ACV sits between a single deal and the full book: it's a per-contract, per-year lens.

Why it matters

ACV tells you the typical size of the deals you're closing. Rising ACV means you're landing larger accounts or expanding existing ones; falling ACV can signal a shift toward smaller customers. Tracking it alongside ARPA and bookings shows whether your sales motion is moving upmarket or down.