What is ACV?
ACV is a metric that calculates the average revenue generated per customer over a given period of time. It represents the average value of a single contract or subscription, regardless of whether it's paid monthly, annually, or on a different billing cycle. ACV helps you understand the revenue potential of your customer base and provides insight into the effectiveness of your pricing strategy.
It's important to note that ACV is not the same as Monthly Recurring Revenue (MRR). MRR is a metric that measures the amount of revenue generated from your recurring subscriptions each month, whereas ACV looks at the average value of a single contract or subscription over a longer period of time, like a year.
Why ACV Is Important
ACV is a key performance indicator that SaaS companies use to measure and forecast revenue. By understanding your ACV, you can make more informed decisions about your pricing and marketing strategies, as well as your overall business model.
ACV provides insights into the effectiveness of a company’s pricing strategy. By tracking ACV over time, you can see how changes to your pricing model impact revenue. This information can help you optimize your pricing strategy to maximize revenue.
ACV also provides a baseline for predicting future revenue. By knowing your ACV and how it changes over time, you can make more accurate revenue forecasts and better plan for growth.
How to Calculate ACV
To calculate ACV, you need to know two things: the total contract value and the number of contracts or subscriptions sold. Here's the formula for calculating ACV:
ACV = Total Contract Value / Number of Contracts
For example, let's say your company has sold 100 annual subscriptions and the total contract value is $120,000.
ACV = $120,000 / 100 = $1,200
This means that the average annual contract value for each of your customers is $1,200.