Average Contract Value (ACV)
Average contract value (ACV) is the typical annual value of a customer contract, usually calculated as total contract value divided by the number of contract years and averaged across customers.
Also called: ACV, annual contract value, average deal size
Why it matters
ACV shapes how a company should sell. A low ACV usually needs a low-touch motion, such as self-serve or high-volume inside sales, because each deal cannot support much sales time. A high ACV can justify account executives, longer sales cycles, account-based marketing and custom proposals.
Definitions vary. Some teams say ACV for annual contract value of a single deal, others for the average across all deals, and some exclude one-time fees while others include them. Average deal size is a close cousin that may not be annualized. Whatever the definition, it should be written down and used consistently in plans and reports.
Example
A company signs three deals in a month: a one-year contract for $24,000, a three-year contract for $90,000 and a two-year contract for $40,000. Annualized, they are worth $24,000, $30,000 and $20,000, so the average contract value for the month is about $24,700.
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