If you’re running a SaaS company or a subscription‑based startup, you live and breathe metrics. They’re the scoreboard for your business – showing you what’s working, what’s not, and where to focus next.
One of those metrics is ACV – short for Annual Contract Value.
It doesn’t get as much attention as things like churn rate or customer acquisition cost (CAC), but it’s quietly one of the most useful numbers you can track if you sell on yearly contracts.
In this guide, we’ll cover:
- What ACV means in sales
- How to calculate ACV
- Why it matters
- A real‑world example you can follow
What ACV Means in Sales
ACV measures the average annual revenue generated per customer contract.
It’s especially relevant if you sell on subscription or multi‑year agreements – think SaaS, enterprise software, or even physical subscription services.
Unlike one‑off transactions, ACV focuses on recurring contract value. It helps you:
- Estimate the annual financial value of your customer base
- Compare accounts by profitability
- Shape growth strategies for specific customer segments
When combined with other KPIs, like Total Contract Value (TCV), Customer Lifetime Value (LTV), and Customer Acquisition Cost (CAC), ACV gives you a much clearer picture of your company’s health.
How to Calculate ACV
The formula is simple:
ACV = (Total Contract Value – One‑Time Fees) ÷ Contract Term Length
Example: If you have a $48,000 contract over two years, your ACV is:
$48,000 ÷ 2 = $24,000
It’s a dollar amount – not a rate or percentage.
Small companies can calculate ACV manually, but if you’re managing dozens (or hundreds) of clients, it’s much easier to use a CRM or sales analytics tool that does it automatically.
Pro tip: We recommend Instantly. It’s not just for cold outreach – its tracking features make it easy to visualize your customer analytics, including ACV, without digging through spreadsheets.
Why Tracking ACV Matters
For subscription businesses, ACV isn’t just “nice to know”, it’s foundational for planning and growth.
Here’s why:
- Accurate revenue forecasting → Predict future cash flow and make smarter decisions about hiring, investment, and scaling.
- Customer profitability insights → Spot your most valuable clients and double down on them.
- Smarter resource allocation → Direct your sales and marketing efforts where they’ll generate the biggest return.
- Better sales strategy → Track how changes in your offer, pricing, or targeting affect contract value over time.
- Financial health check → Use ACV alongside other KPIs to get a true read on your business’s strength.
Example: ACV in Action
Let’s say you run a B2B SaaS company with four contracts:
- Customer A: 2 years, $44,000
- Customer B: 1.5 years, $30,000
- Customer C: 1 year, $25,000
- Customer D: 6 months, $12,000
ACV calculations:
- A: $44,000 ÷ 2 = $22,000
- B: $30,000 ÷ 1.5 = $20,000
- C: $25,000 ÷ 1 = $25,000
- D: $12,000 ÷ 0.5 = $24,000
Average ACV:
(22,000 + 20,000 + 25,000 + 24,000) ÷ 4 = $22,750
That’s your current ACV.
Key Takeaways
- ACV measures the average annual value of your contracts.
- It’s best used alongside metrics like LTV and CAC.
- Tracking it over time helps you refine pricing, sales targeting, and retention strategies.
Need Help Tracking and Growing Your ACV?
You can spend hours calculating this manually or let us handle it.
At Power Agency, we:
- Build done‑for‑you sales systems that keep your pipeline full
- Track and optimize metrics like ACV, LTV, and CAC automatically
- Use Instantly for precise tracking and cold outreach management
- Help you grow your contract value without adding complexity
