ARR Annual Recurring Revenue
The predictable revenue that a company expects to receive annually from subscriptions, providing a clear view of business growth and financial health.
What is ARR?
Annual Recurring Revenue (ARR) is the value of recurring revenue from subscriptions normalized to a one-year period. It's one of the most important metrics for SaaS businesses as it provides predictable revenue visibility and helps measure business growth over time. ARR excludes one-time fees, professional services, and other non-recurring revenue streams.
How to Calculate ARR
ARR = Monthly Recurring Revenue × 12
Simple Example
• Monthly Recurring Revenue: $50,000
• ARR: $50,000 × 12 = $600,000
Alternative Method
• Sum all annual subscription values
• Include upgrades, exclude downgrades
• Normalize multi-year contracts to annual
ARR Components
Revenue from new customers acquired during the period, providing insight into growth momentum.
Additional revenue from existing customers through upgrades, add-ons, or increased usage.
Revenue lost from customers who cancelled their subscriptions during the period.
Revenue lost from existing customers who downgraded their plans or reduced usage.
Why ARR Matters for SaaS
Predictable Revenue Forecasting
ARR provides a foundation for financial planning and helps predict future cash flows with greater accuracy than traditional revenue metrics.
Business Valuation
Investors and acquirers use ARR as a key metric for valuing SaaS companies, often applying revenue multiples to determine company worth.
Growth Measurement
ARR growth rate is a clear indicator of business health and helps track progress toward revenue goals and milestones.
ARR in Strategic Planning
ARR is a fundamental component of comprehensive SaaS financial planning and should be tracked alongside other key metrics in your SaaS metrics dashboard. Understanding ARR trends helps inform GTM strategy decisions and pricing strategy adjustments.
For companies working with a fractional CMO, ARR data provides crucial insights for developing effective marketing strategies and budget allocation decisions.
ARR Growth Benchmarks
ARR Tracking Best Practices
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