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SaaS Busters: ACV (Annual Contract Value) vs ARR (Annual Recurring Revenue)

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After commenting on a post by SaaSMetrics, I realized how much confusion and mixed definitions there are on the difference between ACV (Annual Contract Value) and ARR (Annual Recurring Revenue), which prompted me to think — “I need to research this a bit more”. I want to breakdown my explanation and findings, and define where confusion currently exists.

First let me start by saying ACV tracking and calculation is never really unanimously agreed upon, even by major SaaS businesses who do seem to know what they’re doing. This causes some pretty serious confusion. However you calculate it, whether how I suggest, or in your own way, that your company is all on the same page with how you are measuring ACV. I will answer your questions and give you examples as to why you, and all of us, are probably confused.

Annual Contract Value (ACV) Definition

Annual contract value (ACV) is an average annual contract value of your account subscription agreements. 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. This is how I would define it at least.

Annual Recurring Revenue (ARR) Definition

Annual recurring revenue (ARR) is much less confusing and is typically agreed upon. I will grab the definition from Zuora for us. ARR is the value of recurring revenue of a business’s term subscriptions normalized to a single calendar year. What does that look like on paper? Let’s say Jack purchases a four-year business service subscription from Jill for $20,000. If we normalize the full-term revenue to a single year, our ARR would be $5,000 because that is the yearly income on that subscription.

ACV vs ARR Customer Example

Here is an example of ACV vs ARR calculated with 3 example customers, which we will use to explain the differences of both:

Customer A

Customer A agrees to a $1000 / year, 1 year agreement, and pays monthly.

Metrics calculated for Customer A Only:

  • ARR = $1000
  • ACV = $1000

Customer B

Customer B agrees to a $750 / year, 2 year agreement, and pays yearly.

Metrics calculated for Customer B Only:

  • ARR = $750
  • ACV = $750

Customer C

Customer C agrees to a $500 / year, 3 year agreement, and pays yearly.

Metrics calculated for Customer C Only:

  • ARR = $500
  • ACV = $500

——————–

Metrics calculated with all three customers A, B & C combined:

  • ARR = $2,250
  • ACV =
    • Year 1 = $750
    • Year 2 = $625
    • Year 3 = $500

——————–

Here are the calculations broken down:

  • ARR: $1000 + $750 + $500 = $2,250
  • ACV:
    • Year 1: $1000 + $750 + $500 / 3 = $750
    • Year 2: $750 + $500 / 2 = $625
    • Year 3: $500 / 1 = $500 

ACV-vs-ARR-Example-Summary-Sheet

What Does This Mean?

So as we can see from my definition, ACV is how much, ON AVERAGE, your annual value of a given contract type across all customers of the period is worth. This is the primary difference between ACV and ARR. If you were to add the contract values to calculate ACV then it would come out to the same outcome ($2,250) as ARR just with a different way of getting there.

Let’s take HubSpot’s ACV as an example, it is around $6,000 – $10,000 (just a guess based on this Quora post). It would be much higher if you were to add all of the signed committed agreements for the year, let’s say 1000 contracts x $10,000 = $10M, quite a difference.

ACV Bookings

ACV Bookings however, refers to the total value of accepted term contracts. This means you would add them together vs average them. ACV Bookings are only calculated for 1 year vs multi-year. For beyond one year, TCV (Total Contract Value) comes into play.

TCV (Total Contract Value)

TCV (Total Contract Value) is calculated to see total values of multi-year contracts (this could be yearly contracts or subscriptions that have a termination period, but ongoing subscriptions with no defined end are not included). In our previous example here is how TCV would breakdown:

  • Customer A TCV = $1,000
  • Customer B TCV = $1,500
  • Customer C TCV = $1,500

TCV of Customer A,B and C combined = $4,000

Adding in Implementation Fees, Onboarding Fees, Training, etc.

There are quite a few ways to spin this and it depends on how you package your agreements, how granular you want to get, and ultimately what works best for your business. In my opinion, to simplify, I would associate all fees within a contract as part of the final agreement, given they are a part of the agreement. In the examples above you could simply have calculated one-time fees, onboarding fees, and training included within the numbers for the same outcome.

For example:

  • Customer A agrees to a $1000 / year, 1 year agreement and pays monthly, which includes onboarding fees.
  • Customer B agrees to a $750 / year, 2 year agreement and pays yearly, which includes an implementation fee and training fee.
  • Customer C agrees to a $500 / year, 3 year agreement and pays yearly, which includes onboarding fees and implementation fees.

At the end of the day this would give you a healthy understanding of your ACV and if you wanted to you could always dig in deeper and get more granular by separating calculations later.

ACV Calculated with Expansion Revenue & Churn

To truly calculate ACV more accurately you would want to include Expansion Revenue and Churn.

ACV = New Customers + Expansion or Existing Customers – Churned Customers.

There is a great breakdown of this on For Entrepreneurs where you can read more about this.

Why ACV Might Confuse You

Here are the reasons for your confusion. I may be wrong, but I have researched this a lot and trust me there is confusion everywhere within this subject, but these are my conclusions.

1. ACV vs ACV Bookings – ACV alone is used as an average to understand the average value of your contracts. This is why I look at the following years also. Where as ACV bookings is generally used as a total of your contracts for a 1 year period. When using ACV bookings for a 1 year period you will also see TCV bookings calculated to total multi-year contracts. Sometimes ACV and ACV Bookings are used interchangeably, which in my opinion they should not as they are two separate calculations.

2. Most of the time when calculating ACV people only give an example for 1 customer, which then leads the person to wonder, do I add my customers together or average them to get my calculation?

3. If I would have stated that the agreements were not per year, and instead:

  • Customer A was a $1000 agreement for 1 year
  • Customer B was a $750 (total, not yearly) agreement for 2 years
  • Customer C was $500 (total, not yearly) agreement for 3 years

Then the calculations would calculate differently like this:

Year 1:

  • Customer A: $1000 / 1 year = $1000
  • Customer B: $750 / 2 years = $375
  • Customer C: $500 / 3 years = $166.67

Divide by 3 to average them.

$1000 + $375 + $166.67 / 3

Year 1 ACV = $513.89

——————–

Year 2:

  • Customer A: Not Included
  • Customer B: $750 / 2 years = $375
  • Customer C: $500 / 3 years = $166.67

Divide by 2 to average them.

$375 + $166.67 / 2

Year 2 ACV = $270.84

——————–

Year 3:

  • Customer A: Not Included
  • Customer B: Not Included
  • Customer C: $500 / 3 years = $166.67

Divide by 1 to average.

$166.67 / 1

Year 3 ACV = $166.67

ACV Confusion Identified and Explained

Here are reference examples of the confusion.

Scenario 1 – SaaSMetrics.co

ACV  measures the value of the contract over a 12-month period. So let’s say a customer commits to a 24-month contract of $120,000. Considering this money will be recognized as revenue ratably, we’ll have $5,000 in MRR and therefore $60,000 as your ACV.

It is clear for one contract but this does not specify the outcome of more than one contract so I am not sure if I add or average.

Scenario 2 – Pipetop.com

Annual contract value (ACV) is an average annual contract value of your account subscription agreements.

This is my definition as well.

Scenario 3 – Zuora.com

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.

This uses the term annualized bookings and average is not mentioned at all. This leans towards the idea of adding all contracts together vs finding the average value.

Scenario 4 – Venture Sandbox

ACV Bookings vs TCV Bookings: ACV (Annual Contract Value) counts the expected revenue within the first year, even though some contracts may be multi-year. In order to account for those multi-year contracts we have the TCV (Total Contract Value) metric. We look at both, but care primarily about ACV Bookings.

This uses the term bookings but then does not use the term bookings within the definition. It also doesn’t specify how to calculate ACV (or ACV Bookings) with more than one customer. It leaves you asking, should I add or average?

Scenario 5 – SaaS Optics

SaaS Bookings – Broadly speaking, bookings refers to the total value of accepted term contracts, contracted work or services, and changes to such contracts as of either the order date or the effective date of the transaction.

This simply is used to back up the fact that bookings is used to define total value and not average value. So when adding Bookings to ACV Bookings it would be a total value of first year vs average. Even more confusing is how sometimes bookings may not total multiple years but count them as renewals instead. Either-way though this would total first year value of contracts.

In Conclusion (Phew…)

I didn’t go into this planning on breaking this down quite so much, but as I dug further I found so many discrepancies that I started second guessing things and breaking this down for myself as well.

If you get anything out of this, I hope you have a clear way to calculate ACV and ARR for your company. And most importantly it should be defined so to be consistent with they way the rest of your team agrees to calculate and measure it.

SaaS-KPIs-Consulting

Originally published March 3, 2017, Last Updated March 8 , 2020

Source: https://www.inturact.com/blog/acv-annual-contract-value-vs-arr-annual-recurring-revenue

Blockchain

Millenials Prefer Bitcoin Over Gold, But it it Still Extremely Unequal, Study Finds

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A recent study revealed that Bitcoin and the rest of the cryptocurrencies no longer have the bad reputation that haunted them in the past. In fact, it seems that as the years go by, the preference towards digital tokens is beginning to overtake historically favored assets such as gold and silver.

SimpleMoneyLife —a site focused on personal finance— published a research compiling information from a lot of notable sources —and providing their own insights and findings too. The results are interesting and show that there is still a lot to work on even though the ecosystem has grown a lot.

The research cited a study by deVere Group revealing that 67% of millennials believe Bitcoin is a superior safe-haven asset to gold. This narrative is increasingly gaining traction in the world of cryptocurrencies and traditional finance.

Cryptopotato recently reported that the CEO of Skybridge Capital named Bitcoin as a store of value comparable to gold, with the Bank of Singapore also making a case for this thesis.

Bitcoion vs Gold

SimpleMoneyLife claims that even as a scarce commodity, gold loses out to bitcoin in terms of rarity:

Unlike gold, we know exactly how much Bitcoin is currently in circulation and how much will be in 2050. Bitcoin is better at being scarce than gold.

The study also assures that the Blockchain technology market cap could exceed $40 Billion by 2025. Analysts say that this type of technology could influence how various industries currently do business and develop their activities. Some of the areas that will benefit the most from blockchain technologies are: Supply Chain Management, Secure Elections, Healthcare, Smart Contracts, Keeping Verified Records, Banking, and the Internet of Things (IoT).

Analysts also highlighted that the United States is starting to take a fresh look at blockchain technologies, adding that the country could begin investing close to $4.2 billion on blockchain solutions soon.

The Crypto Twitter community is also very active. SimpleMoneyLife explained that, on average, cryptocurrency enthusiasts send more than 70,000 tweets about Bitcoin every day. They did not share data on activity around other altcoins with a large social media presence such as Chainlink, Ethereum, XRP, Tron, or the new DeFi coins.

The Study Shows an Extremely Unequal Bitcoin Ecosystem

SimpleMoneyLife also highlighted some findings of the inequality of the Bitcoin ecosystem. As much as algorithmically Bitcoin has no preferences, socially, it does.

First, the Bitcoin ecosystem is male-dominated. The compilation notes that UBS says 85.77% of Males are Engaged in the Bitcoin Community Compared to 14.23% of Females.

Want to rdig deeper into the stereotypes? Bitcoin appears to be 80% dominated by white males. Hispanics and black respondents follow with 66% and 61%,  of the rest respectively.

In terms of mining, China controls 65% of the network’s total power. Simultaneously, the rest is distributed around the world, with the United States far behind in first place with a mere 7.24% of mining power.

And in terms of wealth distribution, Bitcoin is extremely unequal, with just 2% of wallets controlling more than 95% of total Bitcoin wealth and the next 100 wallets dominating 13% of the remaining total.

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Source: https://cryptopotato.com/millenials-prefer-bitcoin-over-gold-study-simplemoneylife/

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Blockchain

TA: Ethereum Trims Gains, Why ETH Could Find Strong Support Near $1,275

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Ethereum started a downside correction after trading to a new all-time high at $1,480 against the US Dollar. ETH price is currently approaching the $1,300 and $1,275 support levels.

  • Ethereum started a fresh downside correction from the $1,480 resistance zone.
  • The price is down around 10%, and it is trading close to the 100 hourly simple moving average.
  • There was a break below a major bullish trend line with support near $1,385 on the hourly chart of ETH/USD (data feed via Kraken).
  • The pair is likely to find a strong buying interest near the $1,275 and $1,280 support levels.

Ethereum Price is Approaching a Major Support

After a strong increase above $1,400, Ethereum failed to test the $1,500 resistance zone. A new all-time high was formed near $1,480 before the price started a fresh decline.

There was a clear break below the $1,400 and $1,380 support levels. More importantly, there was a break below a major bullish trend line with support near $1,385 on the hourly chart of ETH/USD. The pair broke the $1,350 support level to move into a short-term bearish zone.

A low is formed near $1,292 and ether is currently attempting a fresh increase. It broke the 23.6% Fib retracement level of the recent decline from the $1,478 swing high to $1,292 low.

Ethereum Price

Source: ETHUSD on TradingView.com

On the upside, there is a major resistance forming near the $1,365 level. It is close to the 50% Fib retracement level of the recent decline from the $1,478 swing high to $1,292 low. There is also a connecting bearish trend line forming with resistance near $1,385.

Ether price is approaching a couple of important supports near $1,300 and $1,285. The main support is forming near the $1,275 level, below which there is a risk of a larger decline in the coming sessions.

Dips Supported in ETH?

Ethereum is currently down around 10%, and it is trading close to the 100 hourly simple moving average. To start a fresh increase, it must gain bullish momentum above the $1,365 and $1,385 resistance levels.

A successful close above the trend line resistance and $1,385 could set the pace for a fresh increase. The next major resistance is near the $1,450 and $1,480 levels.

Technical Indicators

Hourly MACDThe MACD for ETH/USD is slowly losing pace in the bearish zone.

Hourly RSIThe RSI for ETH/USD is currently well below the 50 level.

Major Support Level – $1,275

Major Resistance Level – $1,380

Source: https://www.newsbtc.com/analysis/eth/ethereum-eth-could-find-strong-support-near-1275/

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Blockchain

Kraken Daily Market Report for January 25 2021

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Overview


  • Total spot trading volume at $1.6 billion, close to the 30-day average of $1.65 billion.
  • Total futures notional at $612.2 million.
  • The top 5 traded coins were, respectively, Bitcoin, Ethereum, Tether, Polkadot, and Chainlink.
  • While most coins were down, strong returns from Keep (+9.0%) and Icon (+7.2%).

January 25, 2021 
 $1603.8M traded across all markets today
 Crypto, EUR, USD, JPY, CAD, GBP, CHF, AUD 
XBT 
$32302. 
↑0.07% 
$653.4M
ETH 
$1320.8 
↓5.2% 
$642.8M
USDT 
$1.0000 
↓0.1% 
$149.4M
DOT 
$17.241 
↓4.2% 
$54.6M
LINK 
$23.501 
↓5.4% 
$38.6M
USDC 
$0.9999 
↑0.0% 
$27.8M
ADA 
$0.3436 
↓3.0% 
$21.2M
LTC 
$137.24 
↓2.7% 
$17.4M
XRP 
$0.2678 
↓2.1% 
$14.4M
UNI 
$11.352 
↓5.6% 
$10.4M
BCH 
$433.22 
↓1.5% 
$9.21M
AAVE 
$249.26 
↓6.7% 
$8.07M
XTZ 
$2.9227 
↓4.0% 
$5.88M
XLM 
$0.2614 
↓3.7% 
$5.26M
SNX 
$15.519 
↓12% 
$4.88M
ALGO 
$0.5579 
↓0.9% 
$4.48M
XMR 
$137.44 
↓0.5% 
$4.18M
CRV 
$2.0099 
↓11% 
$3.4M
ICX 
$0.8134 
↑7.2% 
$3.17M
TRX 
$0.0295 
↓1.6% 
$3.07M
YFI 
$29369. 
↓8.9% 
$2.95M
DAI 
$1.0001 
↓0.18% 
$2.9M
GRT 
$0.5304 
↓4.5% 
$2.85M
FIL 
$22.429 
↓1.2% 
$2.51M
ZEC 
$88.030 
↓2.3% 
$2.32M
KSM 
$99.319 
↓4.5% 
$2.24M
COMP 
$213.27 
↓15% 
$2.2M
ATOM 
$7.7592 
↓6.0% 
$2.11M
EOS 
$2.6516 
↓2.4% 
$2.03M
WAVES 
$6.7022 
↓4.3% 
$1.72M
NANO 
$3.1847 
↓5.7% 
$1.65M
BAT 
$0.3018 
↓5.4% 
$1.6M
OMG 
$3.5432 
↓1.3% 
$1.54M
DASH 
$105.09 
↓1.1% 
$1.54M
KAVA 
$2.3747 
↓8.2% 
$1.39M
KEEP 
$0.3268 
↑9.0% 
$1.28M
QTUM 
$3.2947 
↓7.4% 
$1.26M
OXT 
$0.2944 
↓0.27% 
$1.21M
MANA 
$0.1633 
↓4.9% 
$999K
ETC 
$7.4950 
↓2.1% 
$810K
XDG 
$0.0083 
↓4.3% 
$647K
SC 
$0.0045 
↓3.1% 
$527K
KNC 
$1.3233 
↓4.4% 
$516K
MLN 
$38.473 
↓3.3% 
$463K
GNO 
$115.57 
↓4.3% 
$450K
BAL 
$21.029 
↓8.8% 
$405K
LSK 
$1.3277 
↓2.2% 
$306K
PAXG 
$1863.2 
↓0.16% 
$284K
REP 
$20.570 
↓4.0% 
$247K
ANT 
$3.8759 
↓9.7% 
$231K
STORJ 
$0.3888 
↓5.5% 
$117K
REPV2 
$19.286 
↓2.4% 
$48.1K
TBTC 
$34102. 
↑1.9% 
$46.9K



#####################. Trading Volume by Asset. ##########################################

Trading Volume by Asset


The figures below break down the trading volume of the largest, mid-size, and smallest assets. Cryptos are in purple, fiats are in blue. For each asset, the chart contains the daily trading volume in USD, and the percentage of the total trading volume. The percentages for fiats and cryptos are treated separately, so that they both add up to 100%.

Figure 1: Largest trading assets: trading volume (measured in USD) and its percentage of the total trading volume (January 25 2021)



Figure 2: Mid-size trading assets: (measured in USD) (January 25 2021)



Figure 3: Smallest trading assets: (measured in USD) (January 25 2021)



#####################. Spread %. ##########################################

Spread %


Spread percentage is the width of the bid/ask spread divided by the bid/ask midpoint. The values are generated by taking the median spread percentage over each minute, then the average of the medians over the day.

Figure 4: Average spread % by pair (January 25 2021)



.


#########. Returns and Volume ############################################

Returns and Volume


Figure 5: Returns of the four highest volume pairs (January 25 2021)


Figure 6: Volume of the major currencies and an average line that fits the data to a sinusoidal curve to show the daily volume highs and lows (January 25 2021)



###########. Daily Returns. #################################################

Daily Returns %


Figure 7: Returns over USD and XBT. Relative volume and return size is indicated by the size of the font. (January 25 2021)



###########. Disclaimer #################################################

The values generated in this report are from public market data distributed from Kraken WebSockets api. The total volumes and returns are calculated over the reporting day using UTC time.

Source: https://blog.kraken.com/post/7576/kraken-daily-market-report-for-january-25-2021/

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