What is ACV and why does it matter for sales teams?
ACV is a metric that sales teams use to measure the worth of a customer over the course of a year. It takes into account both the initial purchase price and any recurring revenue from that customer. ACV is important because it provides insight into the long-term health of your customer base. By tracking ACV, you can identify which products and services are generating the most revenue, and which customers are providing the most value to your company over time.
As a sales manager, you need to understand what is ACV and how you can benefit from it and use it to increase sales. You might get push-back from your sales team but common objections are easy to overcome.
1. What is ACV?
Sales teams often use the term “ACV” or “annual contract value” when discussing their quotas and targets. But what does ACV mean, exactly? And why is it such an important metric for sales teams? Here’s a quick overview of ACV and its importance in sales:
ACV stands for annual contract value. It’s a metric that measures the worth of a customer over the course of one year, taking into account both the initial purchase price and any recurring revenue from that customer. In other words, it’s the total value of all products and services that a customer will purchase from your company over the course of 12 months.
There are two main types of ACV: new ACV and expansion ACV. New ACV measures the value of new customers acquired during a certain period, while expansion ACV measures the additional value generated from existing customers through upsells, cross-sells, and renewals.
ACV is an important metric for sales teams because it provides insight into the long-term health of your customer base. By tracking ACV, you can identify which products and services are generating the most revenue, and which customers are providing the most value to your company over time. This information can help you make strategic decisions about where to focus your sales efforts in order to maximize growth.
So there you have it – a quick overview of what ACV is and why it matters for sales teams. If you’re looking to grow your business, tracking this key metric should be top priority.
What are the benefits of ACV for sales teams?
As a sales team, you are always looking for new ways to increase your close rate and annual contract value can help you do just that. By understanding your team’s ACV, you can make more informed decisions about where to focus your time and resources.
There are many benefits of having a high ACV, but some of the most important ones for sales teams include:
- Increased Efficiency: When you know your team’s ACV, you can more easily identify which leads are worth pursuing and which ones are not. This allows you to be more efficient with your time and resources, and ultimately close more deals.
- Improved Win Rate: In addition to being more efficient, it also gives you an advantage when it comes to negotiating with customers. You can use this information to show them the value they will be getting by working with your team, and this can help you win more deals.
- Greater Lifetime Value: Customers who have a higher ACV tend to stay with a company for longer periods of time. This means that not only will you make more money from each customer, but you will also save on costs associated with acquiring new customers.
How can you use it to increase sales?
By understanding ACV, sales teams can optimize their efforts to increase revenue. There are a few ways that ACV can be used to increase sales:
- Calculate the lifetime value of a customer. This information can help sales teams prioritize their efforts and focus on selling to customers who are more likely to make larger purchases over time.
- Informed pricing decisions. If a product’s price is too low, it may not be generating enough revenue to cover the cost of acquiring new customers. On the other hand, if a product’s price is too high, it may be deterring potential customers from making a purchase. ACV can help sales teams find the sweet spot for pricing products.
- Set goals for upselling and cross-selling. Once a sales team understands how much revenue each customer brings in, they can set goals for upselling and cross-selling products. This information can help sales teams create targeted campaigns that are more likely to result in additional sales.
What are some common objections to using ACV?
When it comes to using ACV, sales teams often have a number of objections. One common objection is that it’s too time-consuming to calculate. This objection is typically based on the misconception that sales teams need to calculate it for every single customer interaction. However, this is not the case. Sales teams can use ACV as a guideline for their interactions with customers, but they do not need to calculate it for every single interaction.
Another objection that sales teams sometimes have is that it is not relevant to their sales process. This objection is also based on a misunderstanding of how it works. ACV is relevant to all sales processes because it provides guidance on how to value a customer. Sales teams should use ACV as one factor in their decision-making process, but it should not be the only factor.
The final common objection that sales teams have to use ACV is that it gives too much weight to past performance. This objection arises from the belief that ACV only looks at a customer’s past purchase history. However, this is not the case. ACV also takes into account a customer’s future potential. By considering both past performance and future potential, sales teams can get a more accurate picture of a customer’s worth.
How can you overcome objections and get buy-in from your team?
Overcoming objections to using ACV can be difficult, but it is not impossible. The key is to educate your team on what ACV is and why it is important. Once your team understands the basics of ACV, you can start to address their specific objections.
One way to overcome objections is to show your team how ACV can be used in their sales process. Use examples of how other sales teams have used ACV successfully. Explain how ACV can help them close more deals and increase their commission payments.
Another way to overcome objections is to provide training on how to calculate ACV. Many sales teams are reluctant to use ACV because they don’t know how to calculate it. By providing training and resources on how to calculate ACV, you can help your team overcome this objection.
Finally, you can try to address the objection head-on. By addressing the objection directly, you can help your team see the value in using ACV.
Why is it Important?
There are a few reasons why ACV is important for sales managers. First, it can help you set realistic sales goals. If you know what the average customer is worth, you can use that information to develop targets that are achievable but still challenging.
Second, understanding your team’s ACV can help you identify areas where they need to improve. For example, if you have two salespeople who are generating similar amounts of revenue but one has a higher ACV than the other, that’s an indication that the first person is selling to bigger-budget customers or closing more high-value deals.
Finally, knowing your company’s overall ACV can help you make decisions about where to allocate resources. If you know that each new customer is worth an average of $5,000 per year, you might be willing to invest more in marketing or lead generation efforts than if your average was only $500 per year.
How Can You Increase Your Company’s ACV?
There are a few different ways you can work on increasing your company’s ACV:
- Focus on Upselling and Cross-Selling: One way to increase ACV is by upselling and cross-selling existing customers on higher-priced products or services. If you can get each customer to spend just 10% more per year, that can have a big impact on your overall numbers.
- Bring in Larger Deals: Another way to increase ACV is by bringing in more large deals. Even if those deals don’t close at a higher rate than smaller deals, they’ll still have a big impact on your bottom line because of the sheer size of the contracts.
- Improve Customer Retention: Finally, another way to increase ACV is by improving customer retention rates. The longer customers stay with your company, the more revenue they’re likely to generate over time. So anything you can do to reduce churn and keep people happy will pay off in the long run
Wrap-Up – Why Does ACV Matter For Sales Teams?
So, why does ACV matter for sales teams? Well, if you know the ACV of your customers, you can make more informed decisions about how to acquire and retain them. For example, if you know that the ACV of your customers is $1,000, then you’ll be more likely to invest in marketing initiatives that target high-value customers. Alternatively, if you have a low ACV, you might focus on acquiring more customers rather than trying to increase spending among your existing customer base.
In short, ACV is a valuable metric for sales teams because it provides insight into the potential value of a customer. By understanding ACV, sales teams can make more informed decisions about how to acquire and retain customers.