Explain the difference between ACV and ARR.

Explain the difference between ACV and ARR.

• A. ACV is the average annual value per customer; ARR is the sum of all annualized recurring revenue across all customers.
• B. ACV is the total yearly revenue; ARR is monthly recurring revenue.
• C. ACV measures churn; ARR measures retention.
• D. ACV and ARR are the same metric.

Answer: (A)

ACV tells you how much revenue a single customer contract generates each year. ARR takes all recurring revenue from every customer and sums it up for the year. In other words, ARR is the total annualized recurring revenue across the entire customer base, while ACV is the annual value of an individual contract. So ARR can be viewed as the sum of each customer’s ACV. The other statements mix up the time basis (monthly vs yearly), or mislabel churn/retention, or claim the metrics are the same, which doesn’t fit how these measures are defined.

ACV tells you how much revenue a single customer contract generates each year. ARR takes all recurring revenue from every customer and sums it up for the year. In other words, ARR is the total annualized recurring revenue across the entire customer base, while ACV is the annual value of an individual contract. So ARR can be viewed as the sum of each customer’s ACV. The other statements mix up the time basis (monthly vs yearly), or mislabel churn/retention, or claim the metrics are the same, which doesn’t fit how these measures are defined.