Normalise a multi-year contract into its annual value, and the total value over the full term.
ACV strips out non-recurring fees and divides the rest by the term in years, which is what makes a three-year deal comparable with an annual one. Quoting TCV as if it were ACV overstates run-rate revenue by the length of the term. Sales teams are often compensated on TCV while the business is valued on ACV, and confusing the two inflates apparent growth.
Annual Contract Value
ACV = (total contract value − one-off fees) ÷ term in years
ACV = (total contract value − one-off fees) ÷ term in years ACV strips out non-recurring fees and divides the rest by the term in years, which is what makes a three-year deal comparable with an annual one. Quoting TCV as if it were ACV overstates run-rate revenue by the length of the term.
Sales teams are often compensated on TCV while the business is valued on ACV, and confusing the two inflates apparent growth.
This calculator takes 3 inputs: Total contract value, Contract term, One-off setup or services fees included. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.