Weighted Annual Contract Value (WACV) is a modified version of Annual Contract Value (ACV) that assigns weightage to the size of a contract when calculating the average value. For example, if 80% of your revenue is from a single customer, WACV will weigh the contract value of that customer at 80% when calculating the average. This results in WACV being much closer to the value of the largest contracts.
WACV is extremely helpful to companies who have customers of varying sizes, a concept measured by the Customer Concentration metric. While ACV would give equal importance to customers of all sizes, WACV prioritizes your highest revenue customer contracts. The key benefit of measuring your ACV this way is that you get a realistic dollar value of your customer profile, rather than diluting your ACV with tons of low deal value customers. Companies often do this anyway, by filtering out contracts below an arbitrary threshold. With WACV, the arbitrary threshold is replaced by actual weightage based on how much a customer contributes to your total revenue.
WACV can also be used to identify your “very important customers” by dividing your total contract value by WACV. For example, say your total contract value is $500,000 and your WACV is $250,000. If you divide your total contract value by WACV, you get two - which indicates that the majority of your revenue is coming from approximately two customers. When you scale this up to a large customer base, you can use this metric to efficiently identify where the bulk of your revenue is coming from. You can then apply this information to go after similar customer profiles and also to develop long-term relationships with these customers.
None of this is to say that you should neglect any part of your customer base. Nnamdi Iregbulem, who coined this metric, recommends that you measure WACV and ACV together, in order to keep track of your entire customer base. Use WACV as a tool to conduct segmented analysis of your existing customers and your acquisition strategy to capture best-fit as well as high ROI customers.
