Annual Contract Value (ACV): ACV refers to the average annual revenue generated from a particular customer contract or subscription. It is a metric used to assess the yearly value of a customer relationship, excluding any one-time fees or initial setup charges.
Calculation: ACV is calculated by dividing the total contract value by the number of years or months of the contract term, depending on the granularity required. For example, if a customer signs a three-year contract for $90,000, the ACV would be $30,000 per year.
Application in Business: ACV is a crucial metric for companies with subscription-based or recurring revenue models. It helps in forecasting revenue, setting sales targets, and evaluating the lifetime value of customers. Additionally, it provides insights into the efficiency of sales and marketing strategies by highlighting the average revenue potential from each customer annually.
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