Definition
ARR (Annual Recurring Revenue) is the annualized run-rate of your recurring subscription revenue. It is a snapshot of current recurring momentum, not a promise of what you'll recognize over the next 12 months.
Formula
ARR = MRR * 12
Example
If your MRR is $200,000, your ARR is $2,400,000. With annual prepaid plans, cash can spike while ARR moves based on recurring run-rate.
Common mistakes
- Treating ARR as recognized revenue for the next year.
- Including one-time fees or services revenue in ARR.
- Comparing bookings to ARR without normalizing one-time items and term length.
Why this matters
This term matters because small changes compound in SaaS metrics. Use consistent definitions by cohort and segment so you can diagnose retention, payback, and growth quality.
Practical checklist
- Write a 1-line definition for "ARR (Annual Recurring Revenue)" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., ARR Calculator) to sanity-check assumptions.
- Read the related guide (e.g., Bookings vs ARR: what ARR means (and what it doesn't)) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- ARR Calculator: Estimate Annual Recurring Revenue (ARR) from customers and ARPA.
- MRR Calculator: Estimate Monthly Recurring Revenue (MRR) from customers and ARPA.
- ARR Valuation Calculator: Estimate a SaaS valuation from ARR and a revenue multiple (ARR valuation).
- ARR vs MRR Calculator: Convert ARR to MRR (and MRR to ARR) and understand the ARR vs MRR relationship.
- ARR Growth Rate Calculator: Calculate ARR growth over a period and convert it to CMGR and annualized growth (CAGR).
Guides
- Bookings vs ARR: what ARR means (and what it doesn't): Bookings vs ARR explained: what ARR is (and isn't), plus how it differs from bookings and cash receipts.
- MRR: what it means (and how to track it cleanly): A guide to MRR: definitions, what to include/exclude, and how to decompose MRR changes over time.
- ARR vs MRR: definitions, formulas, and how to convert: ARR vs MRR explained: what each metric means, the formulas (MRR*12 and ARR/12), and common pitfalls.
- ARR growth rate: how to measure recurring momentum: A practical ARR growth guide: compute period growth, CMGR, and annualized growth (CAGR) from start and end ARR.
- ARR waterfall: reconcile starting ARR to ending ARR (net new ARR): A practical ARR waterfall guide: starting ARR + new + expansion - contraction - churn = ending ARR, with examples and pitfalls.