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Annual Contract Value, or ACV, is the annualized value of a given customer contract. It is calculated by taking the total value of a contract and averaging it annually.
Though different businesses calculate Annual Contract Value differently, the general calculation for ACV is as follows:
Total Contract Value / Number of Years on the Contract = ACV
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Given ACV is the metric Sales teams use to understand what the annual revenue will be for a contract, it's commonly compared to CAC, customer acquisition costs. When compared, Sales teams can use this to decide if a contract's value is profitable.
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ACV and ARR both measure annualized contract values. The key distinction is that ARR measures the value across multiple accounts versus a single account. We like to use the "C" in ACV to also mean "per Customer".
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