ARR (Annual Recurring Revenue) is the annualized value of contracted recurring revenue, commonly used by subscription and SaaS companies that sell yearly or multi-year plans.
Why it matters
ARR gives a single figure for the scale of recurring business, and it is the number most often quoted in company updates and funding discussions. It is a forward-looking run-rate rather than money already received, so how it is calculated matters. Because it annualizes current contracts, ARR changes whenever customers join, upgrade or cancel. Teams usually track it next to churn and net new ARR to see real momentum.
Example
If MRR is 18,000 USD, ARR is 18,000 multiplied by 12, which is 216,000 USD. A customer on a 3-year contract worth 36,000 USD adds 12,000 USD to ARR, not 36,000.
Common mistakes
- Including one-time or professional-services revenue in ARR.
- Counting a multi-year contract's total value as one year.
- Comparing ARR figures between companies without checking how each defines it.
Related
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