Plain definition
Annual contract value, or ACV, is the annualised recurring value of a customer contract. It is usually used to compare deal size, segments, sales capacity, and contract mix. The definition must say whether one-time implementation, usage, discounts, and multi-year terms are included.
ACV is not ARR, recognised revenue, cash collected, or total contract value. It describes a contract-level annual convention, while ARR describes the recurring run rate across active subscriptions.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Suppose a customer signs a three-year subscription at a year plus a one-time implementation fee. Under a recurring-only definition, ACV is , while the fee is reported separately. Calling the full signed amount ACV would overstate annual recurring value.
The sales team can use ACV to compare deal mix, but finance should still inspect start date, cancellation rights, billing, cash, and revenue recognition.
Use the same rule for every segment; a changing definition can create apparent deal-size growth.
Why it matters
ACV links sales activity to recurring contract scale without pretending that a signature has already become cash or accounting revenue.
Practical consequence
Document the annualisation method and included charges. Keep ACV, bookings, MRR/ARR, invoicing, cash, and recognised revenue in separate fields. Reconcile every material contract to its start date, term, discount, and cancellation terms.