Anual Contract Value, often abbreviated ACV, is one of the most important concepts in subscription business and B2B sales. In English you can call it annual contract value. It describes the average annual revenue that a customer represents in a given deal. When a company works with commission, bonus and performance pay, ACV plays a key role because it is a simple but powerful measure of how much value a single customer creates over time.
Understanding and working strategically with ACV not only provides a better picture of a company's business model, but it also supports the calculation of sales incentives. This is why the concept occupies a lot of space in international SaaS companies and is now becoming more and more widespread in the Nordic countries.
In simple terms, ACV is the total contract value spread over one year. If a customer takes out a three-year contract with a total value of DKK 900,000, the ACV will be DKK 300,000. If the contract is only for one year to DKK 120,000, ACV is equal to DKK 120,000.
The important thing is that ACV smooths out contracts of different lengths so companies can compare customer value across. For salespeople and managers, it makes sales reporting much more consistent. When commissions and bonuses are based on ACV, it becomes easier to reward correctly and create transparency.
When a company designs a commission plan, it is necessary to decide on what the calculation should be based on. Some choose revenue in the first year, others choose total contract value (TCV), while many SaaS companies just opt for ACV.
The advantage of ACV is that it reflects the annual value rather than the entire life cycle of the contract. This means that sellers don't get disproportionately high commission if a customer bonds for a long time, but that the reward matches ongoing earnings. For the company, it provides better control over cash flow and payroll payments, while salespeople still experience fairness and predictability.
ACV is more than just a computational concept. It is a management tool that allows customers to segment, analyze pipeline and calculate growth expectations. When a sales CRM displays deal-level ACV, management can quickly assess whether the team is moving toward the right goals.
For sales representatives, ACV is also a psychological marker. When commission is linked to annual contract value, salespeople can more easily understand how their efforts translate into rewards. It lessens the classic frustration of opaque models, where you can't see why a sale offers a particular bonus.
Think of a company that sells software licenses by subscription. Customer A buys 10 licences for DKK 1,000 per month. This gives a monthly contract value of 10,000 kroner, equivalent to 120,000 kroner per year. Customer B buys a three-year contract with a total value of DKK 600,000. ACV will be 200,000 kroner.
If the commission is calculated from ACV, it means that Customer A and Customer B are rewarded proportionally to their annual value. In doing so, the company avoids paying out excessive commission on long-term contracts, while the sales effort is still being recognized.
In the Nordic region, where many companies have historically based sales on stand-alone projects or hourly services, ACV is still a relatively new concept. However, with the growth of the SaaS economy, consulting subscriptions and digital platforms, ACV is quickly becoming an important target number.
For Danish companies working internationally, reporting on ACV is almost a requirement because investors, boards and foreign partners expect to see key figures that way. The same is true for commission plans, where ACV is increasingly used to standardize reward models.
Confusion often arises because ACV is close to other abbreviations. SCAR (Annual Recurring Revenue) is the total annual recurring revenue across all customers. TCV (Total Contract Value) is the full value of a contract regardless of length.
ACV, on the other hand, is a calculation on the average annual value of the customer. It is particularly useful when contracts have different lengths because it creates a common unit of measurement. In this way, ACV is both a reporting target and a convenient base for commission.