Annual Contract Value (ACV)
Definition
The annualised value of a customer contract, normalising deals of different lengths to a yearly figure. It helps compare and forecast recurring revenue across a customer base.
Related Terms in Financial Analysis
Total Contract Value (TCV)
The full value of a customer contract over its entire term, including recurring and one-off charges. Unlike ACV it reflects the whole commitment rather than a single year.
Rule of 40
A benchmark for software businesses holding that a company's revenue growth rate plus its profit margin should total at least 40%. It balances the trade-off between growing fast and being profitable.
LTV:CAC Ratio
The ratio of customer lifetime value to customer acquisition cost, showing how much value a customer returns for each unit spent to win them. A healthy ratio signals efficient, sustainable growth.
CAC Payback Period
The time it takes to recover the cost of acquiring a customer from the gross profit that customer generates. A shorter payback means cash spent on growth comes back faster.
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