Growth & SaaS
Annual recurring revenue (ARR)
Annual recurring revenue is the yearly value of a company’s recurring subscription revenue at a point in time, usually MRR multiplied by twelve.
ARR = MRR × 12
Worked example
| MRR at the end of the month | $125,000 |
| One-time setup fees billed that month | $15,000 (excluded) |
$125,000 × 12 = $1,500,000 ARR
Why it matters
ARR is the headline number for subscription businesses: it sizes the business for boards, buyers and lenders, and it is the base for ratios such as the burn multiple.
Common mistakes
Where it misleads
Treating ARR as next year’s revenue: it is a snapshot today and ignores future churn and growth.
Including one-time or usage revenue that is not contracted to recur.
Comparing ARR with recognized revenue on the P&L and expecting them to match.
Related terms
Keep reading
- Monthly recurring revenue (MRR)Monthly recurring revenue is the predictable subscription revenue a business expects to bill every month, normalized to a monthly amount.
- Burn multipleThe burn multiple measures how much cash a company burns to add each dollar of new annual recurring revenue.
- Rule of 40The Rule of 40 says a healthy software company’s revenue growth rate plus its profit margin should add up to at least 40%.
Stop calculating it by hand.
Dear CFO keeps your statements, forecasts and metrics current from the systems you already run.