Digital Lexicon Hub

The normalized annual value of a customer contract, excluding or separately identifying one-time charges according to the organization's method.

ACV lets sales and finance compare deals of different lengths on one annual basis, which informs segment strategy, quota setting, sales compensation and how much acquisition cost each deal size can support.

A customer signs a three-year contract worth $90,000 in subscription fees plus a $6,000 onboarding fee. Excluding one-time fees, ACV is $90,000 divided by 3, or $30,000 per year.

There is no standard definition: companies differ on whether to include one-time fees, how to treat ramped pricing and whether ACV means one contract or an average across contracts. Comparisons across companies or reports need the method stated.

ACV is usually calculated as total recurring contract value divided by contract term in years. For multi-year deals with ramped pricing, some teams report average annual value while others report first-year value. One-time charges such as implementation are either excluded or shown separately. ACV is a bookings measure, so it differs from ARR, which reflects active recurring revenue at a point in time.