What is Annual Contract Value (ACV)?
Annual Contract Value (ACV) is the average yearly recurring revenue generated by a single customer contract, usually excluding one-off fees such as setup, onboarding, and implementation. It normalizes multi-year and irregular deals into a like-for-like annual figure, making it easier to compare contract sizes, design sales territories, set booking targets, and connect commercial performance to value creation.
ACV sits alongside Total Contract Value (TCV), Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), Customer Acquisition Cost (CAC), and Customer Lifetime Value (LTV) as a core SaaS and subscription finance metric. Together, they show not just how big a deal looks on paper, but how efficiently it converts into durable, high-margin recurring cash flows.
Formula
For a single contract, the standard ACV formula is:
Where:
- Total Contract Value (TCV) = all recurring contract payments over the full term plus any one-time fees.
- One-time Fees = non-recurring charges (implementation, onboarding, training, setup).
- Contract Term in Years = total contract length expressed in years.
If you start from monthly recurring fees and contract length in months:
- Recurring TCV:
- Contract term in years:
You can then compute ACV focusing on recurring revenue:
If you want ACV including one-time fees, replace TCV ₍recurring₎ with total TCV and subtract the one-time portion as in the main formula.
Example
A B2B SaaS customer signs a 24-month contract with:
- Monthly recurring fee (MRR): $5,000
- One-time implementation fee: $10,000
- Calculate recurring TCV:
- Calculate full TCV including one-time fee:
- Convert contract length to years:
- Compute ACV based on recurring revenue:
In this scenario:
- ACV (recurring): $60,000 per year
- TCV: $130,000 over 2 years
You can now classify this as an enterprise-level contract in your pipeline, tie it to CAC payback and LTV models, and compare it directly to other deals regardless of term length or one-time implementation noise.