What is ACV?
ACV is a core concept in modern B2B revenue. Here is a clear, accurate definition, why it matters, and how Ardovo handles it.
Short answer
ACV, or annual contract value, is the average annualized revenue from a single customer contract, excluding one-time fees. For a three-year, 150,000 dollar deal, the ACV is 50,000 dollars. ACV normalizes deals of different lengths to a yearly figure so you can compare them and measure sales productivity.
Key takeaways
- Annualized value of a single customer contract.
- Normalizes multi-year deals to a yearly figure.
- Excludes one-time setup and services fees.
- Used to compare deal sizes and set quotas.
Why it matters
Comparing a one-year deal to a three-year deal by total value is misleading. ACV puts them on the same annual footing so you can measure and forecast deal economics fairly.
How Ardovo handles it
Ardovo computes ACV from each deal's line items and term, so reporting and quotas use a consistent annualized figure. Rook can segment bookings by ACV band to show where your best deals come from.
Frequently asked questions
How is ACV calculated?
Divide the total recurring contract value by the number of years in the term, excluding one-time fees. A 24-month, 80,000 dollar recurring deal has an ACV of 40,000 dollars.
What is the difference between ACV and TCV?
ACV is the annualized value of a contract; TCV is the total value across the entire contract term including one-time fees. TCV is always equal to or larger than annualized ACV times the term.