What is ARR?
Annual Recurring Revenue – the yearly value of subscription revenue.
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How ARR Works
ARR, or Annual Recurring Revenue, represents the yearly value of recurring subscription revenue. It's a key metric for SaaS and subscription businesses, calculated by taking monthly recurring revenue (MRR) and multiplying by 12, or summing up all annual subscriptions.
ARR provides a normalized view of business health and growth trajectory. It excludes one-time fees and variable usage charges, focusing only on predictable recurring revenue. Growth rate in ARR is a primary metric investors and operators use to assess subscription business performance. ARR expansion comes from new customer acquisition, upsells and cross-sells to existing customers, and minimizing churn.
Frequently Asked Questions
What is ARR?
Annual Recurring Revenue – the yearly value of subscription revenue.
ARR, or Annual Recurring Revenue, represents the yearly value of recurring subscription revenue. It's a key metric for SaaS and subscription businesses, calculated by taking monthly recurring revenue (MRR) and multiplying by 12, or summing up all annual subscriptions.
What does ARR stand for?
Why is ARR important?
ARR is the north star metric for SaaS businesses because it represents predictable, recurring revenue that compounds over time. Investors value ARR highly because it signals future cash flows and business sustainability. ARR growth rate determines valuation multiples—companies growing ARR 100%+ year-over-year command premium valuations while those under 20% struggle to raise capital.
How do you calculate ARR?
ARR = MRR × 12, or sum of all annual subscription contracts. For example, if you have $100,000 in MRR, your ARR is $100,000 × 12 = $1,200,000. Alternatively, sum all annual contracts: if you have 100 customers paying $10,000/year, ARR is 100 × $10,000 = $1,000,000.