Recurring Revenue

Four Ways Sales Teams are Increasing Annual Contract Value (ACV)

Dan Veres
May 17, 2022

One of the (many) reasons I love my job is that I get to interact with a wide variety of sales teams across industries. It has allowed me to leverage the insights I've gained in my interactions to help others increase revenue and crush their sales goals. 

One of the recurring trends I have come across is the interesting strategies sales teams leverage to increase their ACV. 

And I wanted to take you behind the curtain to learn some of those secrets. 

Ready? Let's go!  

Why Measuring ACV is Critical

While many Metrics are related to the health of a business, ACV is critical because it provides vital insights into sales. Because it only looks at the annualized value - averaged over the life of a contract - it allows you to identify better which accounts have the highest revenue and those that have the highest potential revenue. 

What is Annual Contract Value (ACV)?

Annual Contract Value, or ACV, is the annualized value of a given customer contract. It is calculated by taking the total value of a contract and averaging it annually. 

Though different businesses calculate Annual Contract Value differently, the general calculation for ACV is as follows:

Total Contract Value / Number of Years on the Contract = ACV

High ACV vs. Low ACV Sales Strategies

In some cases in the SaaS space, a company might pursue a low ACV strategy. In this scenario, the sales motion is focused on getting as many new customers as possible, regardless of their value. In SaaS, this often manifests itself in a Product-Led Growth motion. 

High ACV Sales Strategies generally focus on quality over quantity - or revenue over quantity. The sales strategy is to close high-value deals, even if they have longer sales cycles and require a more hands-on approach. 

In both of these cases, increasing the ACV of a customer over time is critical. 

The Secret Strategies for Increasing ACV

1. Charge for Professional Services

I've been amazed at the number of earlier-stage companies I have come across that do not charge for professional services as part of their contracts. 

If you include things like onboarding/account setup, implementation, or ongoing maintenance, you should quantify it and assign it as a list price. 

Quantifying these services can be as simple as Hours x Rate. 

I've seen startups add hundreds of thousands of dollars to their Annual Revenue with this simple addition to their contracts.

2. Require Finance's Approval

We all know that Sales Reps are incentivized to close business and meet quotas. But, as sales organizations grow, it's important to set up guardrails to ensure reps aren't offering discounts that hurt your business' bottom line. 

While Sales might be incentivized to discount, Finance is not. In fact, no one in the business is more sensitive to the effects of discounting than your Finance Team. They look at discounts the way Michael Jordan looks at participation trophies.

Hence, when Sales has to go through Finance to discount, Sales tends to sell better, discount less, and focus on the customers who aren't just price shopping.

3. Ramp Pricing

Does your customer only need ten seat licenses today but knows they'll need another ten in six months?

Instead of doing a co-term in six months, you can build a "ramp" in your contract where the customer pays for ten licenses for the first six months and 20 licenses for the next six months.

If need be, incentivize your customer by giving them a better rate for pre-purchasing future licenses. Including the additional seats will increase ACV/ARR, but it will also save your Sales/CS/Finance team the time they would have spent on the expansion in six months.

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4. Tiered Support Plans

You have some customers who are willing to pay a lot more for premium support than what you're charging them.

Trust me. 

All it takes is one terrible support experience with another vendor for a customer to not go cheap on support again.

Tier your support plans, and don't be hesitant to charge a premium for your top-tier package. It might be a little harder to sell, but not only will it increase ACV/ARR, customers on premium support will also have the best retention rates.

Sr. Account Manager

Dan Veres

Dan works with both new and existing customers. As someone in sales, he only wishes he knew about RevOps in previous jobs. You can find Dan hiking, reading, or enjoying life's finer things in his free time.

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