ACV vs ARR
ACV and ARR are both used to describe how big a deal or account is — and they're often used interchangeably. But they don't always measure the same thing. Here's exactly how they differ.
The short answer
ARR (Annual Recurring Revenue) strictly measures recurring subscription revenue, annualized. ACV (Annual Contract Value) is the average annualized value of a contract, and — depending on how a company defines it — may also include one-time, non-recurring fees that ARR excludes.
The key difference: ARR = recurring revenue only. ACV = the whole contract's annualized value, which may include non-recurring pieces.
For a simple annual subscription contract with no one-time fees, ACV and ARR are usually the exact same number — which is why the terms get used interchangeably so often. The difference only shows up once one-time revenue (implementation, onboarding, professional services) enters the picture.
Side-by-side comparison
| ARR | ACV | |
|---|---|---|
| Stands for | Annual Recurring Revenue | Annual Contract Value |
| What it measures | Recurring subscription revenue only, annualized | Average annualized value of a contract (may include one-time fees) |
| Includes one-time fees? | No, by definition | Sometimes — depends on company policy |
| Most commonly used for | Company-wide growth metrics, retention/churn (NRR, GRR) | Deal size, sales quota, individual account value |
| Formula | MRR × 12 | Total Contract Value ÷ Contract Length (years) |
| Who uses it most | Finance, executives, investors | Sales, account management, customer success |
Worked example: when they diverge
Say a customer signs a 1-year contract with:
- $40,000 in annual subscription fees (recurring)
- $10,000 one-time implementation fee (non-recurring)
| Metric | What's included | Value |
|---|---|---|
| ARR | Subscription fees only | $40,000 |
| ACV (if company includes one-time fees) | Subscription + implementation, annualized | $50,000 |
| ACV (if company excludes one-time fees) | Subscription fees only | $40,000 |
This is exactly why it's worth asking how your company (or a company you're interviewing with) defines ACV — some fold in one-time revenue, others don't. It changes how "deal size" gets reported and how quotas get measured.
When to use each metric
Use ARR when...
You want a strict, comparable measure of predictable recurring revenue — for company-level growth reporting, board decks, investor updates, or retention metrics like Net Revenue Retention (NRR) and Gross Revenue Retention (GRR). ARR is the metric that shouldn't include one-time noise.
Use ACV when...
You want to describe the size of a specific deal or account, including whatever your company considers part of "the contract's value" — which might include implementation or onboarding fees in the first year. ACV is more common in sales conversations, quota-setting, and deal reviews.
Rule of thumb: If someone says "ACV" and "ARR" and gets different numbers for the same deal, ask what's included in each — the gap is almost always one-time fees.
Why this matters in customer success
Both metrics show up in a CSM's world, but for slightly different reasons:
ARR drives retention metrics
Net and gross revenue retention — two of the most common CSM KPIs — are calculated using ARR, since they're measuring whether recurring revenue is being retained or lost. A renewal that keeps the subscription but drops a one-time service fee doesn't hurt ARR retention, even though it might affect ACV-based deal size.
ACV shapes book-of-business sizing
When accounts get segmented (SMB, mid-market, enterprise) or a CSM's book gets sized, it's often expressed in terms closer to ACV or ARR per account — either way, understanding both terms helps you read comp plans, account tiering, and quota structures accurately.
For the full picture on how account size relates to CSM pay, see our What is ARR? page, which includes real, self-reported CSM compensation data broken out by book size.
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