Calculating your average contract value (ACV) is an important metric for any business to understand. Your ACV will help you determine the revenue generated by each customer, making it easier to identify high-value customers and build effective sales strategies. In this article, we’ll take a closer look at how to calculate your ACV.
Step 1: Determine the Timeframe
The first step in calculating your ACV is to determine the timeframe you want to measure. For example, you may want to know the ACV for a quarter, a year, or a specific month. Once you’ve determined the timeframe, you can move on to the next step.
Step 2: Add up the Contract Values
The next step is to add up the total value of all the contracts signed during the timeframe you selected. This means adding up the value of each contract signed, including any up-sells or cross-sells that occurred during that time.
Step 3: Divide by the Number of Contracts
Once you have the total value of all contracts, you can divide that number by the total number of contracts signed during the timeframe. This will give you your ACV.
For example, if you signed five contracts during the month of January with a total value of $20,000, your ACV for January would be $4,000 ($20,000 divided by 5 contracts).
Step 4: Refine Your ACV Calculation
While the above example is a simple way to calculate your ACV, it’s important to refine this calculation to include additional metrics. For instance, you may want to exclude contracts that were terminated early or adjust your ACV to account for yearly contracts versus monthly contracts.
Additionally, you may want to segment your ACV by different customer types or product lines to identify trends and opportunities for growth.
Conclusion
Calculating your ACV is an essential step in understanding the revenue generated by each customer and building effective sales strategies. By determining the timeframe, adding up the total contract values, and dividing by the number of contracts, you can calculate your ACV. However, it’s important to refine this calculation by including additional metrics and segmenting it by different customer types or product lines.