Having been on the purchasing side of these contracts with SaaS vendors, here's how I see it working:
- the service is charged $/use, the more you use the more you pay. The service provider likes this model as their costs track perfectly to the revenue
- the service client can estimate how much they think they'll use the service, but a "pay per use" is ultimately foreign to an IT industry which is used to the "buy a product for a fixed price and use as much as we want/can".
- even if the client's technology and management groups can come to grips with this (not easy), the client's finance team definitely can't. They need a budget for the SaaS, and everyone pretends budgets are real, so the estimated use ends up being thought of or presented as the real number.
- similarly, the sales guy wants to put a number in the sales contract. It is technically meaningless - there's no lock in or guaranteed spend - but it is important for (a) the client to set a budget, (b) the sales guy's commission, and (c) the SaaS provider reporting ACV (!)
So the ACV numbers are just guesses of what a client will spend. They may be "commitments" (or not?), but that depends on what we mean by commitment. I would be highly surprised if they stipulate that the sum is non-refundable or -cancellable. SaaS ultimately depends on flexibility both ways - you can get out easily, but you can also spend more than you expect quite easily.
The ACV numbers are thus an indicator of future invoices but not a particularly reliable indicator. Given we see and expect good organic growth (i.e. big increases aren't exclusive to new contacts), *and* we don't really know how ACV is calculated (if i spend over my contracted amount does that impact ACV? what if I spend under contacted amount?), I'm going to be looking at invoiced amounts instead.
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Having been on the purchasing side of these contracts with SaaS...
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