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Metrics
ARR (Annual Recurring Revenue)
Annual Recurring Revenue (ARR) is the predictable revenue that a SaaS company expects to receive annually from its subscription customers, normalized to a one-year period.
What is ARR?
ARR represents the value of recurring subscription revenue normalized to a one-year period. It's one of the most important metrics for SaaS businesses as it provides a clear picture of predictable revenue streams and business growth trajectory.
How to Calculate ARR
ARR Formula
ARR = Monthly Recurring Revenue (MRR) × 12
Or alternatively: ARR = (Total Contract Value ÷ Contract Length in Years)
Why ARR Matters
- Predictable Revenue: Provides visibility into future revenue streams
- Business Valuation: Key metric used by investors to value SaaS companies
- Growth Tracking: Enables measurement of year-over-year growth
ARR vs MRR
ARR
• Annual view of recurring revenue
• Better for long-term planning
• Preferred by investors
• Smooths out monthly fluctuations
• Better for long-term planning
• Preferred by investors
• Smooths out monthly fluctuations
MRR
• Monthly view of recurring revenue
• Better for operational decisions
• More granular tracking
• Faster to detect changes
• Better for operational decisions
• More granular tracking
• Faster to detect changes
Best Practices
- • Only include recurring revenue (exclude one-time fees)
- • Normalize all subscriptions to annual amounts
- • Track ARR growth rate month-over-month
- • Segment ARR by customer size, plan type, or geography
- • Monitor ARR churn and expansion separately
Need Help Optimizing Your ARR?
Our SaaS marketing experts can help you develop strategies to grow and optimize your Annual Recurring Revenue.