What is the difference?

Weighted ACV vs ACV

Weighted ACV

Annual Contract Value

What is it?

Weighted Annual Contract Value (WACV) calculates the average contract dollar value with a weighted average proportional to the value of the contract. Essentially, higher value contracts are assigned more importance when calculating the total average contract value of a business. This approach is helpful to companies that have widely varying customer concentration by accurately calculating an ACV that is not skewed by contracts with low dollar value.

Annual Contract Value (ACV) is the dollar amount an average customer contract is worth to your company in one year. There tends to be less universal consensus on the definition of ACV compared to some other SaaS metrics, such as Annual Recurring Revenue. For example, some companies include one-time initial charges like setup or training in their ACV calculations, while others don’t.

Formula

ƒ ((Contract Value 1 * Percentage of Total Contract Value) + (Contract Value 2 * Percentage of Total Contract Value))
ƒ Sum(Value of all Customer Contracts for 1 year) / Count(# of Customers under Contract)

Example

Say you have three customers. Customer 1 has a contract value of $40,000 while the other two customers have a contract value of $5000 each. Adding up these numbers (40k + 5k + 5k), you get a total contract value of $50,000. You weighted ACV is calculated as follows: ($40,000 * ($40,000 / $50,000)) + ($5,000 * ($5,000 / $50,000)) + ($5,000 * ($5,000 / $50,000)). This gives you a WACV of $33,000. This is much more nuanced than the ~$17,000 you would get with the typical ACV metric.

You have 100 customers. 30 signed a 3-year contract with a contract value of $90,000, equivalent to $30,000 / year. 30 signed a 2-year contract with a contract value of $80,000, equivalent to $40,000 / year. 40 signed a 1-year contract with a contract value of $50,000, equivalent to $50,000 / year First Year Annual Contract Value = ( (30,000 x 30) + (40,000 x 30) + (50,000 x 40) ) / 100 customers Year 1 ACV = $41,000 Second Year Annual Contract Value = ( (30,000 x 30) + (40,000 x 30) ) / 60 customers Year 2 ACV = $35,000 Third Year Annual Contract Value = (30,000 x 30) / 30 customers Year 3 ACV = $30,000

Published and updated dates

Date created: Jan 21, 2022

Latest update: Jan 25, 2022

Date created: May 20, 2020

Latest update: Jan 24, 2022