Annual Contract Value (ACV): What Every SaaS Business Should Know

ACV is one of the best ways to tell if a SaaS company is doing financially, but many of them don’t use it as a growth metric. Knowing and improving your ACV can help your SaaS business grow in a way that lasts, no matter how old it is or how new it is. It can also help you stand out in a crowded market.

What does Annual Contract Value (ACV) stand for?

Annual Contract Value (ACV) is the average amount of money a customer contract brings in each year. It’s an important metric for SaaS companies because it shows how much recurring revenue they can expect over the course of a year. Let’s say a client signs a $30,000 contract for three years. The ACV would be $10,000 per year.

Metrics like Monthly Recurring Revenue (MRR) focus on short-term income. ACV, on the other hand, looks at long-term value and stability. When SaaS companies look at ACV, they can learn more about:

Customer Value: Each customer is worth a certain amount of money over a year.

Sales Efficiency: How well the sales team’s work fits with the company’s goals for making money.

Growth Potential: Information about how the business can grow.

Why ACV is Important for SaaS Companies

The subscription-based model gives SaaS companies a steady stream of revenue that is essential to their success. ACV is an important metric because it shows how stable your customers’ income is. This is why it’s important:

1. Making revenue predictions

ACV helps businesses make more accurate predictions about their yearly income. This is very important for making budgets, planning finances, and setting growth goals that are attainable.

2. Making the strategy for getting new customers better

If your ACV is low, it could mean that your sales efforts are focused on smaller deals or customers with small budgets. You can change your strategy to target higher-value customers and get a better return on investment (ROI) by looking at ACV.

3. Boosting the confidence of investors

Investors like things that they can plan for. If your ACV is high, it means that your business has a good way of making money and is getting good, long-term customers. This could be very important for getting funding.

4. Making teams work together for growth

ACV isn’t just a way to measure sales. It helps the marketing, product, and customer success teams work together better. Knowing ACV helps everyone focus on giving value to customers who are willing to pay more.

How to Figure Out ACV

It’s easy to figure out the Annual Contract Value. Take the total value of a contract and divide it by the number of years it lasts. For example, the ACV of a $24,000 contract that lasts for two years is $12,000.

The ACV of a $15,000-a-year deal is $15,000.

It is important to keep in mind that ACV calculations usually don’t include one-time fees like setup or onboarding fees. The only thing that matters is recurring revenue to see how stable things will be in the long term.

Ideas for Increasing ACV

1. Cross-selling and up-selling

Getting more ACV from current customers is often the easiest way to do it. Upselling premium features or cross-selling products that go well with each other can make a single customer much more valuable.

2. Going after important clients

Not every customer is the same. You can raise your ACV by finding and focussing on industries or groups of customers with bigger budgets. Make a profile of your ideal high-value customer with the help of customer data.

3. Making changes to pricing models

You can also raise ACV by rethinking your pricing strategy. To lock in long-term revenue, you might want to offer annual contracts at a slight discount over monthly plans.

4. Making it easier to keep customers

Growth is driven by retention. By giving your customers great service and value, you can increase their lifetime value and get them to sign new, higher-value contracts.

How to Tell the Difference Between ACV and LTV

Lifetime Value (LTV) and Annual Contract Value (ACV) are terms that are often used together, but they actually measure different things about your business. ACV looks at how much money a customer brings in each year, while LTV figures out how much money a customer brings in over the course of their lifetime. Both ACV and LTV are important, but ACV helps you predict short-term revenue more accurately, while LTV focusses on long-term profitability.

HubSpot can help you improve ACV.

To maximise ACV, you need to use data to make smart choices. This is where HubSpot can make a huge difference in your plan. It has strong CRM and data analysis tools that let you:

Keep track of customer information: Learn more about the segments that bring in the most ACV.

Improve Sales Pipelines: Make sales tasks easier and more automated so you can focus on important customers.

Improve strategies for retention: To keep important clients interested, use marketing automation and customer success tools.

HubSpot’s reporting tools also let you see how ACV changes over time, which can help you improve your strategies and stay ahead of the competition.

What 9H Digital Can Do To Help

We help SaaS companies like yours grow by making metrics like ACV work better at 9H Digital. Our team can help you reach your goals whether you need help with digital marketing, customer segmentation, or putting together a CRM. Because we work with HubSpot, we can help you add tools that get results that you can measure.

Set up a demo of HubSpot today.

Are you ready to grow your SaaS company? Our HubSpot expert, Ale, can show you how HubSpot can help you get the most out of your annual contract value and grow in a way that lasts. To schedule your demo right now, click here.

Book a HubSpot demo with Ale to see how your SaaS business can benefit. Book a call here.