Annual Recurring Revenue (ARR)
Annualised value of recurring subscription revenue
What is Annual Recurring Revenue (ARR)?
Annual recurring revenue is the yearly value of a business's active subscriptions. It shows the scale of predictable revenue a subscription business has.
ARR is the headline measure for software and subscription companies, used to track growth, plan and value the business.
How this KPI is measured
- Function
- Sales
- Sub-function
- Recurring Revenue
- Industry
- Software / Technology (SaaS)
- Type
- Lagging
- Impact
- Revenue
- Unit
- $
- Measurement frequency
- Monthly / Quarterly
- Formula
- MRR × 12
How to calculate it
Multiply monthly recurring revenue (MRR) by 12.
For example, if MRR is 400,000, ARR is 4,800,000.
Include only recurring subscription revenue, not one-off fees, and use the same rules each time. Track new, expansion, contraction and churned amounts separately to explain movements.
Where it is used
Tracking growth
Follow the size of the recurring base.
Planning and forecasting
Project future revenue.
Reporting to investors
Give a standard measure.
How to improve it
Tips and common mistakes
- Do not include one-off or usage revenue that is not committed.
- Watch the mix of annual and monthly contracts.
- Read with churn and retention.
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