Definition
ARR (Annual Recurring Revenue) is MRR annualized (MRR * 12). It's an annualized run-rate snapshot, not a promise of revenue.
Bookings vs ARR (and cash)
- ARR measures recurring run-rate; bookings measure contracted value; cash measures receipts.
- For annual prepay, cash can be high while ARR grows more steadily.
- Use ARR for comparability across SaaS businesses; use cash for runway planning.
ARR vs MRR
- MRR is monthly run-rate; ARR is typically MRR * 12 (same run-rate, different time unit).
- Use MRR for monthly momentum and waterfalls; use ARR for scale comparisons and many efficiency metrics.
- If ARR and MRR don't reconcile, definitions or timestamps likely differ.
ARR movements (net new ARR)
- Net new ARR = new + expansion - contraction - churned ARR.
- Use an ARR waterfall to reconcile starting ARR to ending ARR for a period.
- Segment by plan/channel/customer size to avoid blended averages hiding churn pockets.
Bookings vs ARR vs cash: quick comparison
| Metric | What it measures | When to use | Common mistake |
|---|---|---|---|
| ARR | Recurring run-rate (typically MRR * 12). Excludes one-time fees/services. | Comparing SaaS scale and momentum across time or companies. | Treating ARR as guaranteed annual revenue or including services revenue. |
| Bookings | Contracted value closed in a period (may include prepay, one-time fees, services). | Sales performance, pipeline conversion, and forecasting contracted demand. | Assuming bookings equals recurring run-rate or comparing bookings to ARR without adjusting for one-time items. |
| Cash | Money collected (cash receipts). Sensitive to billing terms and prepay timing. | Runway planning and cash-flow management. | Using cash spikes from annual prepay as proof of recurring growth without checking retention and renewals. |
Pitfalls
- Counting services revenue as ARR inflates true recurring run-rate.
- Ignoring churn/retention when annualizing short-term MRR spikes.
- Treating bookings/billings/cash timing as ARR growth (different concepts).
Examples (annual prepay vs monthly)
- Annual prepay: cash may spike today, while ARR reflects ongoing run-rate (MRR * 12).
- A large annual contract can increase bookings immediately even if ARR only increases as recurring run-rate grows.
- If you add one-time services to a deal, bookings rise but ARR should not include the services portion.