ACV measures the revenue that a company can expect to receive from a customer in a given year.
Annual Contract Value (ACV) is the total value of a customer contract in a SaaS (Software as a Service) company over a one-year period. It is a measure of the revenue that the company can expect to receive from a customer in a given year.
To calculate ACV for a SaaS company, you will need to know the following:
Average revenue per user (ARPU): This is the average amount of money that each customer pays per month.
Number of months in the contract: This is the length of the customer's contract, in months.
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.
It's important to note that ACV is a forward-looking metric that reflects the revenue that the company is expected to receive in the future, based on the terms of its customer contracts. Actual MRR (Monthly Recurring Revenue) may differ from ACV due to changes in the number of paying customers and the ARPU.
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