Annual recurring revenue is the value of active subscriptions expressed over a year. It is usually monthly recurring revenue multiplied by twelve, or the sum of annual contract values. Like MRR it leaves out one-off fees, so it describes the repeatable part of the business.
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When to use ARR instead of MRR
ARR suits companies selling annual or multi-year contracts, where a monthly figure would be artificial. It is also the common language for planning, board reporting and talking about company size.
Reading it honestly
A booked contract is not the same as cash received, and a customer who has given notice is still in ARR until they leave. Define in writing when something enters and leaves ARR, and apply the rule the same way every period.
Common mistakes
Annualising a short spike
Multiplying one unusually strong month by twelve overstates the base.
Mixing definitions between reports
If sales counts signed deals and finance counts live subscriptions, the two numbers will never match.
Frequently Asked Questions
No. Revenue is what was recognised in the period. ARR is a run-rate of recurring subscriptions at a point in time.
Only the committed, predictable part. Variable usage is normally reported separately.
Keep reading
- MRR (Monthly Recurring Revenue): MRR is the predictable subscription revenue a SaaS company expects to earn each month, with one-off fees left out.
- Net Revenue Retention: The share of recurring revenue kept from an existing customer group over a period, including expansion, after downgrades and churn. Above 100% means growth.
- Gross Revenue Retention: The share of recurring revenue kept from existing customers over a period, counting only losses from churn and downgrades. It can never exceed 100%.
- Expansion Revenue: Additional recurring revenue from existing customers through upgrades, extra seats, add-ons or higher usage. The main driver of net revenue retention.
- Acquisition Channel: A route through which a company finds new customers, such as organic search, paid ads, referrals, partners or outbound sales. Each has its own costs and limits.
- Annual Recurring Revenue: The yearly value of a SaaS company's active subscription contracts, excluding one-off fees. The headline size metric for most subscription businesses.
- Average Contract Value: The average annual value of a customer contract, excluding one-off fees. It shapes which sales motion and acquisition channels a SaaS company can afford.
- Average revenue per account: Average revenue per account is recurring revenue divided by the number of paying accounts.
