Annual contract value (ACV) is the average annualized revenue a single customer contract generates, calculated by spreading the total contract value evenly across the years of its term. It is most often used for subscription and recurring B2B agreements, where deals run longer than a single billing cycle. ACV lets you compare contracts of different lengths on an equal, per-year basis.
How it works
The basic formula divides total contract value (TCV) by the number of years in the term:
ACV = total contract value / contract length in years
A three-year deal worth 90,000 has an ACV of 30,000. One-time fees, such as setup or onboarding charges, are usually excluded so the figure reflects recurring revenue only. Definitions vary between companies, so it is worth documenting how you treat prorated periods, discounts, and non-recurring charges.
Why it matters
ACV helps you size accounts, forecast recurring revenue, and set sales targets without being distorted by contract length. A large TCV can look impressive but may just reflect a long term rather than a high-value customer. Comparing ACV alongside metrics like annual recurring revenue (ARR) and customer acquisition cost gives a clearer read on account quality.
Applied to B2B quoting on Shopify
Most Shopify B2B quoting is transactional (a purchase order for a set quantity), so ACV applies mainly when a quote covers a recurring or multi-period commitment, such as a standing supply agreement or annual pricing contract. If you quote both one-off and recurring arrangements, tag them separately so recurring deals feed a clean ACV number. Related metrics are covered in the B2B quoting glossary.
Example
A wholesale buyer signs a two-year supply agreement priced at 48,000 total, with a 2,000 one-time onboarding fee. Excluding the onboarding fee, the recurring portion is 46,000, giving an ACV of 23,000 per year.