Annual contract value (ACV) typically maps to an annualized bookings number. For companies that also charge one-time fees in conjunction with recurring fees, the first-year ACV might be higher than later-year ACVs in a multi-year contract.
Annual recurring revenue (ARR) is the amount of revenue companies expect to repeat, allowing measurement of company progress and predicting future growth. The value measures momentum in areas such as new sales, renewals, upgrades, downgrades, and lost customers.
Subscription business models bring a new vocabulary to performance management, with CFOs and other executives now tracking indicators like Annual Contract Value, Monthly Churn Rate and Annual Recurring Revenue. In this mobile-centric, Big Data world, decision-makers need the ability to harness forward-looking, real-time performance data – without it, they have little hope of understanding the real levers of profitability.
Subscriptions are replacing the traditional product sales models, and are fundamentally changing the face of businesses, industries, and your finance job. Download a free copy of An Introduction to Subscription Finance and get strategies for understanding and growing your recurring revenue.