Annual Contract Value (ACV) is the average yearly value of a single customer contract. It's the metric sales teams and SaaS businesses use to size an individual deal, as opposed to ARR, which sums up all customers' recurring revenue across the whole business.
The formula
A 3-year contract worth $90,000 total has an ACV of $30,000 — the amount attributable to a single year of the deal, regardless of how the contract is actually billed.
Why ACV matters
ACV determines a business's go-to-market motion. Low ACV (under ~$5,000/year) usually means a self-serve or product-led sales motion, since the deal size can't support an expensive sales process. High ACV (tens of thousands of dollars or more) can support a dedicated sales team, longer sales cycles, and custom onboarding, because each closed deal is worth the extra cost.