Here are a few key differences between ACV and ARR:
Posted: Thu Jan 02, 2025 10:38 am
ARR is a useful metric for understanding revenue growth over time and forecasting income fluctuations from renewals, upsells, or cancellations.
ACV vs ARR: key differences
acv definition va arr definition
ARR is often mentioned alongside ACV when looking at revenue metrics. some tips for running a successful telemarketing business ACV and ARR are both important revenue metrics for subscription-based businesses, but they measure different aspects of revenue.
Annual Contract Value (ACV) Annual Recurring Revenue (ARR)
Definition Measures the revenue value of a single, subscription-based contract Measures the value of all of a company’s subscription-based contracts
Scope Include all income generated in a year, including one-time purchases Measures revenue generated only from recurring subscriptions
Calculation Measured as the average dollar amount generated by a customer Calculates the total dollar amount generated on an annual basis.
Formula Formula for ACV may vary by company Formula for ARR is standardized and used across most companies
Use case An isolated metric that is most useful when used in conjunction with other metrics A figure that can be used on its own to track revenue growth and make better sales and marketing decisions
The importance of monitoring ACV
When you understand your customers’ ACV, you can compare customers whose contracts differ in type or duration and discover which accounts provide the most significant revenue value to your business. Knowing this empowers you to better service individual customers, especially those with the greatest long-term potential. Here are a few benefits of using ACV as a revenue metric.
Prioritize high-value accounts
You can use ACV to measure what your customers bring to the table and prioritize those who bring the most.
ACV vs ARR: key differences
acv definition va arr definition
ARR is often mentioned alongside ACV when looking at revenue metrics. some tips for running a successful telemarketing business ACV and ARR are both important revenue metrics for subscription-based businesses, but they measure different aspects of revenue.
Annual Contract Value (ACV) Annual Recurring Revenue (ARR)
Definition Measures the revenue value of a single, subscription-based contract Measures the value of all of a company’s subscription-based contracts
Scope Include all income generated in a year, including one-time purchases Measures revenue generated only from recurring subscriptions
Calculation Measured as the average dollar amount generated by a customer Calculates the total dollar amount generated on an annual basis.
Formula Formula for ACV may vary by company Formula for ARR is standardized and used across most companies
Use case An isolated metric that is most useful when used in conjunction with other metrics A figure that can be used on its own to track revenue growth and make better sales and marketing decisions
The importance of monitoring ACV
When you understand your customers’ ACV, you can compare customers whose contracts differ in type or duration and discover which accounts provide the most significant revenue value to your business. Knowing this empowers you to better service individual customers, especially those with the greatest long-term potential. Here are a few benefits of using ACV as a revenue metric.
Prioritize high-value accounts
You can use ACV to measure what your customers bring to the table and prioritize those who bring the most.