Table of Contents
Average Contract Length (ACL) is exactly what it sounds like: the average duration of all your signed customer contracts, usually measured in months. It's a simple metric on the surface, but it says a lot about your pricing strategy, customer confidence, and even how mature your SaaS business is.
Most SaaS companies, especially early-stage or self-serve products, are naturally biased toward monthly plans. But as your business matures, longer-term commitments, such as annual or multi-year contracts, start to play a bigger role. That's where ACL starts to matter.
How to Calculate Average Contract Length
ACL is the average number of months your customers commit to when signing up. To calculate it:
ACL = Total committed months / Total number of contracts
✅ Monthly contracts count as 1
✅ Annual = 12
✅ Multi-year = 24, 36, etc.
Example:
Company Z has:
-
10 customers on monthly plans (10 months)
-
2 customers on annual plans (24 months)
-
1 customer on a 2-year contract (24 months)
Total committed months: 10 + 24 + 24 = 58
Total number of contracts: 13
Average Contract Length: 58 ÷ 13 = 4.5 months
Why Average Contract Length Matters
At first glance, longer contracts sound great. More commitment! More revenue stability! Less churn!
But hang on... longer isn't always better.
Let’s break down when a shorter ACL can be a strategic advantage and when to start chasing those longer-term deals.
When a Shorter ACL Is Actually a Good Thing
If you’re an early-stage SaaS startup, a shorter ACL can work in your favor. Here’s why:
-
Faster feedback loops: Monthly contracts mean more frequent churn or renewal signals. If customers are bailing early, you’ll know, and you can do something about it.
-
Easier experimentation: You're likely still tweaking pricing, onboarding, and packaging. Locking customers into long-term deals might slow down your learning.
-
Customer hesitancy: If you're still working on trust or social proof, annual contracts can feel like too big an ask. Monthly is a lower-commitment entry point.
In short, short contracts let you stay nimble. They’re not a weakness, they’re a signal that you’re still in “learning mode.”
When You Should Aim for a Longer ACL
As your product matures and your GTM (go-to-market) motion gets more predictable, more extended contracts make a lot more sense.
-
Stronger cash flow: More money up front means more capital to reinvest.
-
Better forecasting: Longer commitments reduce churn volatility and make your revenue more predictable.
-
Sales team efficiency: Long-term deals are usually harder to close, but they tend to be higher value and longer-lasting.
-
Customer buy-in: A longer ACL is a sign of confidence. If your product delivers on its promise, customers will want to stick around.
How to Increase Your ACL
Want longer commitments? Here are a few ways to make that happen:
-
Incentivize annual plans: Offer a discount, bonus features, or priority support for longer terms.
-
Start at the sales level: Train your sales team to pitch the long-term value of your product.
-
Prove value quickly: The faster you deliver ROI, the more likely customers are to commit.
-
Make switching inconvenient (in a good way): If your product is deeply embedded in their workflows, multi-year renewals become the obvious choice.
Just remember: you can’t strong-arm a long contract if your product hasn’t earned it.
Bonus: ACL as a Confidence Indicator
ACL isn’t just about your pricing model. It’s also a proxy for customer trust.
If most of your customers are month-to-month and canceling within 90 days, that might point to a retention issue, or at least a lack of perceived long-term value. If they’re happily signing 2- or 3-year deals, that’s a sign your product is sticky, reliable, and aligned with their goals.
💡 Baremetrics’ Retention Tables let you visualize how long customers stick around by cohort. It's the perfect companion to ACL - because a long contract doesn’t always mean long retention. → Try for free
So… What’s a “Good” ACL?
It depends. (Sorry, but it’s true.)
-
< 3 months: Totally fine for early-stage or freemium/self-serve products
-
3–9 months: You’re starting to gain traction with small teams or budget-constrained orgs
-
12+ months: You’ve likely got an established sales motion and are selling to businesses that depend on you
If you’re benchmarking against others in your industry, make sure you're comparing similar ACVs (Average Contract Values) and go-to-market models. A $20/mo tool is going to look very different from a $50,000/yr contract.
TL;DR
-
ACL = average length of all signed contracts (in months)
-
Shorter contracts = agility and quick feedback
-
Longer contracts = stability and customer trust
-
Don’t force longer ACLs before your product (and team) is ready
-
Use ACL as a check-in on how confident your customers are in what you're building
See Your ACL in Real Time
Ready to track your trends, view retention tables, and optimize for growth?
Start your free trial with Baremetrics and take charge of your SaaS metrics today.
