Formula
ACV = recurring fees over the committed term
÷ committed term in yearsWorked example
Illustrative figures. A three-year contract with annual price steps and a one-time implementation fee of $25,000.
| Contract year | Recurring fees | One-time fees |
|---|---|---|
| Year 1 | 80,000 | 25,000 |
| Year 2 | 100,000 | – |
| Year 3 | 120,000 | – |
| Total | 300,000 | 25,000 |
TCV = 300,000 + 25,000 = 325,000
ACV = 300,000 ÷ 3 = 100,000
ARR in year 1 = 80,000
ACV and ARR
ACV averages a contract across its term; ARR measures the run rate on a date. For a flat annual contract the two are equal. For a ramped contract they generally differ: ARR starts below ACV and ends above it. In the example, ARR is 80,000, 100,000 and 120,000 against an ACV of 100,000.
One-time fees
Practice varies. Many definitions exclude one-time fees from ACV; some include them in a first-year ACV used for sales compensation. State which is used.
Uses
- Segmenting customers and setting sales territories.
- Sales capacity and quota planning.
- Pricing analysis across plans and contract lengths.
What Revnewed provides
Revnewed does not report ACV. Each contract holds its line items with prices, quantities, billing intervals and service dates, its contract type and an optional total contract value: the inputs to ACV.
Common misstatements
- ACV reported as ARR
- For a ramped contract, the two differ in most years of the term.
- One-time fees included without disclosure
- Implementation fees inflate first-year ACV and are not repeated.
- Month-to-month contracts annualised as committed
- A contract with no committed term has no ACV in the strict sense. If its price is annualised, label it.