Average Contract Value (ACV)¶

Definition¶

Average Contract Value (ACV) measures the average monetary value of a customer contract over a specified period, typically annually. It’s used to evaluate the revenue contribution of individual contracts and is particularly relevant for subscription-based or SaaS businesses.

Description¶

Average Contract Value (ACV) is a vital metric for deal size analysis and revenue planning, reflecting the average annualized value of customer contracts. Unlike CLTV, it doesn’t consider lifetime — it zeroes in on deal size per contract or agreement, making it ideal for account-based and enterprise GTM models.

The relevance and interpretation of this metric shift depending on the model or product:

In B2B SaaS, it shows typical deal size by vertical, region, or plan
In hybrid models, it separates low-touch freemium from high-touch enterprise motions
In usage-based billing, it helps normalize value across variable usage tiers

A rising ACV trend reflects stronger product-market fit, value realization, and effective upselling. A drop may flag discount reliance or misalignment between offerings and ICP needs. Segment by customer size, industry, or acquisition source to inform pricing, bundling, and GTM focus.

Average Contract Value (ACV) informs:

Strategic decisions, like targeting high-value segments and refining packaging
Tactical actions, such as monitoring the impact of promotions or bundling strategies
Operational improvements, including forecasting and sales quota planning
Cross-functional alignment, by helping finance, sales, and product marketing optimize for deal quality over volume

Key Drivers¶

These are the main factors that directly impact the metric. Understanding these lets you know what levers you can pull to improve the outcome

Pricing Model and Tier Structure: If most users fall into your lowest pricing tier, ACV remains flat. Upsell paths and value-based tiers lift average deal size.
Sales Negotiation and Packaging: Discounting, bundling, and how reps position value all influence final contract value. Poor negotiation = low ACV.
Customer Segmentation Strategy: SMBs tend to yield lower ACV, while enterprise segments naturally drive higher-value deals. Where you focus affects your averages.´

Improvement Tactics & Quick Wins¶

Actionable ideas to optimize this KPI, from fast, low-effort wins to strategic initiatives that drive measurable impact.

If ACV is flat or dropping, audit recent closed deals and identify pricing levers left on the table (e.g., underused tiers, excessive discounts).
Add higher-value tiers with clear business outcomes, not just more features — align price with impact.
Run a test with value-based vs. usage-based pricing in new customer segments, and compare ACV outcomes.
Refine sales enablement around price objection handling, ensuring reps don’t default to discounting too early.
Partner with product marketing to better articulate ROI for high-value tiers, especially in enterprise decks and proposals.

Required Datapoints to calculate the metric
- Total Revenue from Contracts: The total income from contracts during the measurement period.
- Number of Contracts: The total number of active contracts in the same period.
Example to show how the metric is derived

A SaaS company tracks contract data for the year:
- Total Revenue from Contracts: $1,000,000
- Number of Contracts: 100
- ACV = $1,000,000 / 100 = $10,000 per contract

Formula¶

Formula

\[ \mathrm{Average\ Contract\ Value} = \frac{\mathrm{Total\ Revenue\ from\ Contracts}}{\mathrm{Number\ of\ Contracts}} \]

Data Model Definition¶

How this KPI is structured in Cube.js, including its key measures, dimensions, and calculation logic for consistent reporting.

Contracts

cube(`Contracts`, {
  sql: `SELECT * FROM contracts`,

  measures: {
    totalRevenue: {
      sql: `total_revenue`,
      type: `sum`,
      title: `Total Revenue from Contracts`,
      description: `The total income from contracts during the measurement period.`
    },
    numberOfContracts: {
      sql: `contract_id`,
      type: `countDistinct`,
      title: `Number of Contracts`,
      description: `The total number of active contracts in the same period.`
    },
    averageContractValue: {
      sql: `${totalRevenue} / NULLIF(${numberOfContracts}, 0)`,
      type: `number`,
      title: `Average Contract Value`,
      description: `Measures the average monetary value of a customer contract over a specified period, typically annually.`
    }
  },

  dimensions: {
    contractId: {
      sql: `contract_id`,
      type: `string`,
      primaryKey: true,
      title: `Contract ID`,
      description: `Unique identifier for each contract.`
    },
    contractDate: {
      sql: `contract_date`,
      type: `time`,
      title: `Contract Date`,
      description: `The date when the contract was signed.`
    }
  }
})

Note: This is a reference implementation and should be used as a starting point. You’ll need to adapt it to match your own data model and schema

Positive & Negative Influences¶

Negative influences

Factors that drive the metric in an undesirable direction, often signaling risk or decline.
- Pricing Model and Tier Structure: A flat pricing model with most users in the lowest tier can keep the Average Contract Value low by not encouraging customers to move to higher-priced tiers.
- Sales Negotiation and Packaging: Poor negotiation skills and excessive discounting can decrease the Average Contract Value by reducing the final contract price.
- Customer Segmentation Strategy: Focusing primarily on SMBs can result in a lower Average Contract Value due to the smaller deal sizes typical of this segment.
- Market Competition: High competition can force price reductions, negatively impacting the Average Contract Value.
- Economic Downturns: Economic challenges can lead to budget cuts and reduced spending by customers, decreasing the Average Contract Value.
Positive influences

Factors that push the metric in a favorable direction, supporting growth or improvement.
- Pricing Model and Tier Structure: Implementing value-based pricing tiers and effective upsell paths can increase the Average Contract Value by encouraging customers to choose higher-priced options.
- Sales Negotiation and Packaging: Effective negotiation strategies and value-based packaging can lead to higher contract values by reducing unnecessary discounting and emphasizing the value of bundled offerings.
- Customer Segmentation Strategy: Focusing on enterprise segments rather than SMBs can increase the Average Contract Value due to the naturally higher-value deals in these segments.
- Product Differentiation: Offering unique features or superior product quality can justify higher pricing, thereby increasing the Average Contract Value.
- Customer Success Initiatives: Proactive customer success efforts can lead to higher renewals and upsells, positively impacting the Average Contract Value.

Involved Roles & Activities¶

Involved Roles

These roles are typically responsible for implementing or monitoring this KPI:

Finance
Product Marketing (PMM)
Revenue Operations
Sales Manager
Activities

Common initiatives or actions associated with this KPI:

Pricing Strategy
Sales Enablement
Negotiation Playbooks

Funnel Stage & Type¶

AAARRR Funnel Stage

This KPI is associated with the following stages in the AAARRR (Pirate Metrics) funnel:

Revenue
Type

This KPI is classified as a Lagging Indicator. It reflects the results of past actions or behaviors and is used to validate performance or assess the impact of previous strategies.

Supporting Leading & Lagging Metrics¶

Leading

These leading indicators influence this KPI and act as early signals that forecast future changes in this KPI.
- Product Qualified Leads: The number and quality of Product Qualified Leads (PQLs) directly influence future Average Contract Value, as PQLs have a high likelihood of converting to larger or higher-value contracts, thus increasing ACV over time.
- Deal Velocity: Faster deal velocity often correlates with closing higher-value contracts more quickly, driving up Average Contract Value as the sales team focuses on qualified, high-potential opportunities.
- Upsell Conversion Rates: Higher upsell conversion rates signal an increased ability to move existing customers to higher tiers or add-ons, which raises the average value of contracts closed.
- Customer Loyalty: Strong customer loyalty increases the likelihood of renewals and expansions, resulting in customers signing larger or longer-term contracts, thus increasing Average Contract Value.
- SQL-to-Opportunity Conversion Rate: A high conversion rate from Sales Qualified Leads (SQLs) to opportunities often means a better pipeline of high-value deals, which can lead to higher Average Contract Value as more qualified opportunities close.
Lagging

These lagging indicators confirm, quantify, or amplify this KPI and help explain the broader business impact on this KPI after the fact.
- Customer Downgrade Rate: An increased downgrade rate lowers Average Contract Value by shifting customers to lower-priced plans or reduced commitments, providing a direct explanation for ACV declines.
- Expansion Revenue Growth Rate: Growth in expansion revenue reflects successful upsells and cross-sells, directly increasing the Average Contract Value as existing accounts spend more over time.
- Contract Renewal Rate: High renewal rates, especially on larger contracts, help sustain or raise Average Contract Value by preventing churn of high-value customers and supporting long-term revenue streams.
- Revenue Churn Rate: High revenue churn (often due to lost or downgraded contracts) reduces Average Contract Value, confirming and quantifying the negative impact of attrition on contract values.
- Average Deal Size: Average Deal Size is a direct component of Average Contract Value, confirming upward or downward shifts and providing a granular view of deal-by-deal trends contributing to overall ACV.