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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

Axie Infinity Records Holders ATH: 420% Year to Date Growth

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Popular non-fungible token (NFT) gaming platform Axie Infinity continues to see increased adoption from users, following exponential growth in the number of wallet addresses.

Axie Sees Surge in Address Holders

According to data provided by IntoTheBlock on Tuesday (September 28, 2021), Axie Infinity Shards (AXS) ownership is on the rise, with 17,480 address holders. This figure represents a new all-time high (ATH) and a 420% increase year-to-date (YTD). Meanwhile, this growth is indicative of the rising popularity of Axie Infinity and play-to-earn non-fungible token (NFT) gaming.

Back in July, CryptoPotato reported that the value of the AXS token skyrocketed nearly 400% within one month, leading to a market capitalization of over the $1 billion mark. Later in August, AXS was among the assets listed on the major cryptocurrency exchange Coinbase Pro, which also gave it an immediate boost.

Axis Infinity, developed by Sky Mavis and released in 2018, arguably popularised the play-to-earn trend and has recorded a number of impressive milestones in recent times. Data from DappRadar revealed that the project recorded over $2 billion in NFT sales volume, solidifying Axie’s place as the most valuable NFT collection, thereby surpassing major names such as CryptoPunks, Art Blocks, and NBA Top Shot.

The data also showed that more than 600,000 users traded Axis Infinity NFTs, resulting in 4,887,645 transactions. The project currently boasts over 1.5 million daily active users.


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According to Jeff Zirlin, co-founder of Axie Infinity, half of the platform’s users got to interact with cryptocurrency and blockchain for the first time through Axie, while 25% of them did not own a bank account.

The Growth of NFT Gaming

The NFT industry is becoming popular with celebrities, major sports leagues, and companies buying digital art in whatever form, or selling them. However, blockchain-based games are seeing a special kind of attention.

A report by DeFiPrime stated that the NFT Gaming market has a total market valuation of nearly $180 billion as of August 2021, with the value estimated to rise to $196 billion. An excerpt from the report reads:

“NFT games may have the potential to become the standard for the gaming market if it sees enough attention and popularity. Already they have made major changes to games and made it much more fun for players. From there, it could be a very major change to the way people play games and could be as major as Doom was to the market or 3D was for environments.”

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Source: https://cryptopotato.com/axie-infinity-records-holders-ath-420-year-to-date-growth/

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Blockchain

Bitcoin, Ethereum will draw their market strength from this key aspect

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Bitcoin and Ethereum are currently surviving a bearish scare, with both assets just about holding a position above their immediate supports. For Bitcoin, the $41,000-level is establishing a strong bounceback range while Ethereum has managed to remain above $3000.

On the contrary, some altcoins have recorded strong recoveries, with Solana, Bitcoin Cash, and Uniswap hiking by more than 10% in one 24-hour window.

Now, these altcoins seemed to have the relative edge at press time. However, there are a couple of key metrics which may allow us to evaluate the actual strength of Bitcoin, Ethereum as the market goes forward.

How much importance should be given to utility?

Source: Sanbase

Over the past few years, market stability has been dependent on different aspects. During the bullish rally of 2017, investor sentiment was key and when major traders started to become bearish, the digital assets collapsed.

Then, it was constructive institutional inflows at the beginning of 2019. At the time, it was suggested that institutions can allow tokens such as BTC, ETH to hold higher price positions. The price fell in 2020, irrespective of rising interest.

However, one key idea missed by most speculators might be the utility side of things, which is presently one of the most important functionality. Gone are the days when astute marketing allowed assets such as TRON to climb into the top-10.

Now, according to Santiment, Bitcoin has hit a two-month high in terms of circulation. What’s more, if the chart is closely observed, the average BTC transferred has risen consistently over the month of September.

Source: Sanbase

Similarly, Ethereum hit a similar feat but its 1-day circulation index was at a 3-month high, indicative of high token utility and movement.

Ethereum’s price has dropped sharply over the course of the past few weeks, but circulation has remained high.

Bitcoin, Ethereum spaces have evolved

Now, to be fair, it is important to account for volatility and the fact the circulation isn’t as high as it was during May 2021. However, maintaining a development and transaction-intensive ecosystem, one which allows the price to be built on strong foundations, is eventually advantageous.

Now, with respect to the assets that have grown over the past few days, besides BCH, both Solana and Uniswap are extremely utilized tokens. While one is the native token of a major DEX, another asset is currently responsible for bringing better L2 solutions.

Likewise, for Bitcoin and Ethereum, higher utility and circulation should keep the asset relevant, and progressively exhibit significant recoveries over Q4 of 2021.

Where to Invest?

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Source: https://ambcrypto.com/bitcoin-ethereum-will-draw-their-market-strength-from-this-key-aspect

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Blockchain

Swaps.app Offering Seamless Crypto Swaps With No KYC Process

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Swaps.app Offering Seamless Crypto Swaps With No KYC Process

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Swaps.app is simplifying how users are converting Bitcoin and other cryptocurrencies by eliminating the current barriers available in the market.

The EU-regulated company is changing how people swap cryptocurrencies for money with its “swap’n’Go” approach. The platform is a user-friendly space that allows anyone around the globe to effort conduct various trading activities.  

Swaps.app has various unique features. The platform notably offers low commissions and a faster transaction experience to its users compared to many other venues in the market.

Swaps.app offers the lowest fees in the industry while at the same time offering the best buying rates. Transactions performed on the Swaps.app employ price execution from top liquidity providers. In turn, this assures that Swaps.app customers get the best price possible for their purchase.

In addition, transactions on the platform take about 3 minutes. This is because there is no Know-Your-Customer (KYC) process and allows transactions to take three minutes to complete. This is a breath of fresh hair since the registration process associated with cryptocurrency exchanges is usually lengthy and cumbersome compared to most. The process has notably caused many people not to engage in cryptocurrency trade. 

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Another notable feature is that coins get to users’ digital wallets within 15 minutes of payment approval. Swaps.app has two currencies available for purchase, including Tether (USDT) and Bitcoin (BTC). Currently, the platform is accepting two payment methods, Visa and MasterCard debit and credit cards. Users can purchase varying amounts of cryptocurrencies up to €1,000 per month.

To merchants and developers, Swaps.app provides a convenient order widget that can be integrated into any webpage with just a few clicks.

In addition to being regulated by the authorities, Swaps.app integrates a full 3-DS V2 for safe and secure transactions. Reportedly, card purchases that use PCI DSS Level 1 certification will be authorized by code and verified by Visa or Mastercard ID Check.

Swaps.app is now available to over 160 plus countries and is available 24/7 throughout the year. The platform is owned and operated by Octo Liquidity, based in Tallinn, Estonia.

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.

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Source: https://zycrypto.com/swaps-app-offering-seamless-crypto-swaps-with-no-kyc-process/

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