Annual Recurring Revenue (ARR) is the value of a company's recurring subscription revenue normalized to a one-year period.
What is ARR?
ARR is the headline number for subscription businesses selling annual contracts. Boards, investors, and valuations are most often expressed as a multiple of ARR, so it's the metric most SaaS leadership teams orient around.
How to calculate ARR
or = sum of annualized value of all active subscriptions
Worked example
A company with $50,000 in MRR has an ARR of $50,000 × 12 = $600,000. A single 3-year contract worth $360,000 contributes $120,000 to ARR (its annualized value), not the full contract value.
What's a good ARR?
Crossing $1M ARR, $10M ARR, and $100M ARR are the classic SaaS milestones. Top-quartile companies roughly triple ARR in early years (T2D3: triple, triple, double, double, double).
Frequently asked questions
Is ARR the same as annual revenue?
No. ARR captures the annualized value of active recurring contracts at a point in time. GAAP annual revenue is what's actually recognized over the year and includes non-recurring items.
Does ARR include one-time fees?
No. Only recurring subscription value counts toward ARR. Implementation fees, services, and one-off charges are excluded.
How do multi-year contracts affect ARR?
Only the annualized portion counts. A $300k three-year deal adds $100k to ARR, not $300k.
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