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How do you calculate Annual Contract Value (ACV) for SaaS companies?

ACV measures the revenue that a company can expect to receive from a customer in a given year.

Annual Contract Value (ACV) is a SaaS metric that measures the total revenue a company expects to receive from a single customer contract over a 12-month period. ACV is commonly used alongside Annual Recurring Revenue (ARR) to track business growth and forecast future revenue.

To calculate ACV for a SaaS company, you will need to know the following:

  1. Average Revenue Per User (ARPU): The average monthly revenue generated per customer.

  2. Number of months in the contract: The total duration of the customer's contract expressed in months (e.g., 12 months for an annual contract).


Once you have these numbers, you can use the following formula to calculate ACV:

ACV = ARPU * Number of months in the contract

 

For example, if a SaaS company has an ARPU of $100 and a customer contract that lasts for 12 months, the ACV for each customer would be:

ACV = $100 * 12 = $1,200

 

This means that the company can expect to receive $1,200 in revenue from each customer over the course of a one-year contract.

 

ACV is a forward-looking metric based on contracted terms, meaning it reflects expected future revenue rather than revenue already collected. Actual Monthly Recurring Revenue (MRR) may differ from ACV when the number of paying customers or the ARPU changes. For multi-year contracts, ACV normalises total contract value to a single year, making it easier to compare deals of different lengths.

 

For further guidance on SaaS metrics and revenue operations, visit BIAS Digital.