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Your annual contract value (ACV) tells you the annual value of each customer or account regardless of the contract’s length. You can use your ACV to estimate how much you’ll earn from each new customer and how many customers you’ll need to reach your revenue goals.
You can compare ACVs and customer acquisition costs (CACs) to determine whether a customer will be profitable during their first year. You can also compare the ACV of different types of accounts or customers to identify which ones may be most profitable.
A higher ACV isn’t necessarily better — you need to consider the number in context. For example, some B2C companies have low ACVs and a large potential market, while a B2B company might focus on selling high-cost subscriptions to a few target customers.
ACV differs from your annual recurring revenue (ARR) because ARR uses standardized inputs and calculations. For example, ARR does not include one-time charges and only includes contracts that have at least a 12-month term. Additionally, you generally use ACV to track the value of a single account (or average value of accounts), while ARR can show you the total value of your recurring revenue from subscriptions.
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