ACV vs ARPA
Annual Contract Value (ACV) and Average Revenue per Account (ARPA) measure customer revenue in subtly different ways for subscription businesses. ACV represents the average annualized revenue from each contract, typically focusing on new bookings or renewals within a specific period and normalizing multi-year contracts to their annual equivalent value. ARPA (sometimes called Average Revenue per User or ARPU) calculates the average revenue generated across all active customer accounts in a given period, including customers at various stages of their lifecycle and contract terms, providing a broader view of overall revenue distribution across the entire customer base.
A SaaS company should focus on ACV when evaluating sales team performance or analyzing the impact of pricing changes on new deals. For example, if a company introduces a new enterprise tier and sees their ACV increase from $15,000 to $22,000, it demonstrates the sales team's success in selling higher-value contracts. Conversely, the same company would emphasize ARPA when assessing overall monetization efficiency or tracking the impact of cross-sell and upsell initiatives across their entire customer base. If the company's ARPA increases steadily quarter over quarter while ACV remains stable, it suggests successful expansion within existing accounts rather than improvements in new deal sizes—indicating that customer success efforts may be more effective than sales strategies at driving revenue growth.
Annual Contract Value
Average Revenue Per Account
What is it?
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.
Average Revenue Per Account (ARPA) is the average revenue generated per account per year or month. It is used as an indication of revenue generation capability and the ability to meet targets.
Who is it for?
Categories
Formula
Example
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
Consider a company has 1000 accounts and is generating $100,000 in revenue per month. Average Revenue per Account would be, ARPA = $100,000 / 1000 = $100 per account per month
Published and updated dates
Date created: Oct 12, 2022
Latest update: Mar 31, 2023
Date created: Oct 12, 2022
Latest update: Oct 12, 2022