Annual Recurring Revenue (ARR)

Annual Recurring Revenue (ARR) is the yearly version of MRR, representing the predictable revenue a company expects to receive annually from subscriptions.

How to Calculate ARR

The simplest way to calculate ARR is:

ARR = MRR × 12

Or you can calculate it directly:

ARR = (Sum of Annual Subscription Values) + (Sum of Monthly Subscriptions × 12)

When to Use ARR vs MRR

Use ARR** for annual contracts, investor reporting, long-term planning.

Use MRR** for monthly operations, short-term forecasting, tactical decisions.

ARR Growth Rate

ARR growth rate is a key metric for SaaS businesses:

ARR Growth Rate = ((Current ARR – Previous ARR) / Previous ARR) × 100

ARR Composition

New ARR: From new customers

Expansion ARR: From existing customer growth

Contraction ARR: From downgrades

Churned ARR: From lost customers

ARR Milestones

$1M ARR: Product-market fit achieved

$10M ARR: Scalable go-to-market proven

$100M ARR: Category leadership potential

ARR-Based Valuation

Early Stage: 5-15x ARR

Growth Stage: 10-25x ARR

Public Companies: 15-50x ARR (varies by growth rate)

ARR Forecasting

Effective ARR forecasting considers: – Sales pipeline and conversion rates – Seasonal patterns – Churn trends – Expansion opportunities – Market conditions

ARR provides a clear view of business scale and is essential for strategic planning and investor communications.