ACV vs ARR
Contract value versus company run-rate — what each measures, how they relate, and the reporting traps between them.
What's the difference?
ARR is the company's annualised recurring run-rate — one number for the whole business. ACV is the average annualised value of a single contract. A business with 125 customers averaging $2,400 of ACV is a $300,000 ARR business: ARR ≈ ACV × customer count, and each metric answers a question the other cannot.
ARR tells you how big the business is; ACV tells you what kind of business it is. Two $300,000-ARR companies — one with 125 customers at $2,400, one with three contracts at $100,000 — share a headline and nothing else: different sales motions, different churn tolerance, different risk.
Where do they get confused?
Multi-year deals are the classic trap: a $240,000 two-year contract is $120,000 of ACV and $120,000 of ARR contribution — but announcing it as 'a $240k deal' invites the TCV number into an ARR sentence. The second trap is one-time fees: implementation and setup belong in neither metric, and any pipeline that annualises invoices will smuggle them into both.
Keep the audiences straight: quota and deal reviews run on ACV, board decks and valuations run on ARR, and the conversion between them should only ever be multiplication by customer count — if reconciling the two takes a spreadsheet, a definition has drifted.