Contractor Finance Glossary
What is Annual Contract Value (ACV)?
Definition reviewed .
Also called: ACV
Annual contract value normalizes contracted recurring fees to twelve months. It is distinct from recognized revenue and collected cash, so compare those amounts separately.
ACV turns a pile of service agreements with different terms and payment schedules into one comparable number per contract. A three-year agreement billed monthly and a one-year agreement billed upfront can finally be measured against each other, which is what you need to see whether your recurring base is growing.
ACV sizes the recurring fee base. Compare 12-month gross profit on agreement fees with gross profit on repair/project work for those customers, rather than assuming which contributes most. Keep non-recurring pull-through separate.
How it is calculated
Normalized ACV = total contracted recurring fees, net of contract discounts and including scheduled escalators, divided by term in years. Also show year-by-year fee amounts when escalators make years unequal. Monthly fee times 12 for a cancellable agreement is run-rate ACV, not a guaranteed contracted year; read it alongside cancellation and renewal rates.
Related reading
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