Annual Contract Value (ACV)
Annual Contract Value (ACV) is the average annualized revenue per customer contract. For monthly contracts, ACV = monthly price x 12. For multi-year deals, ACV = total contract value / number of years. It indicates the size of your typical deal and determines which sales model you can afford.
Why Annual Contract Value (ACV) Matters for SaaS Companies
ACV determines your go-to-market model. Below $5K ACV, you need self-serve or product-led growth — you cannot afford sales reps. At $5-25K ACV, inside sales works. Above $25K, field sales becomes viable. Getting ACV wrong means either overspending on sales (sales reps for $2K deals) or under-investing (self-serve for $50K enterprise deals).
An Operator's Take
I see founders build expensive sales teams for low-ACV products. If your ACV is $3,600, a fully-loaded sales rep costing $150K needs to close 42 deals per year just to cover their cost — before contributing to profitability. That is nearly one deal per week. More realistically, you need product-led growth or high-volume inside sales at that ACV. Understanding this math before hiring prevents expensive mistakes.
Common Mistakes
What I see go wrong at Seed to Series B companies.
Building a high-touch sales process for a low-ACV product. Your sales model must be sustainable at your deal size.
Including one-time fees in ACV. ACV should reflect recurring revenue only — setup fees and services are separate.
Not segmenting ACV by customer type. Your enterprise ACV might be $50K while SMB is $2K. The blended average is misleading for planning.
What to Do This Week
Concrete steps you can take right now.
Calculate your ACV: total new ARR from deals closed / number of deals closed. Then segment by customer type.
Map your ACV to the appropriate sales model. Are you over- or under-investing in sales relative to your deal size?
Identify paths to increasing ACV: annual vs. monthly contracts, multi-product bundling, tier restructuring.
Related Resources
Try These Tools
Further Reading
Frequently Asked Questions
What is a good ACV for SaaS?
There is no universal 'good' ACV — it depends on your market and sales model. The key is that your ACV supports your go-to-market approach. $1-5K ACV: self-serve/PLG. $5-25K ACV: inside sales. $25-100K ACV: field sales. $100K+ ACV: enterprise sales with solution engineers. Match the model to the deal size.
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