Annual Recurring Revenue (ARR)
The annualized value of recurring subscription revenue, calculated as MRR multiplied by 12.
Formula
ARR = MRR × 12
Annual Recurring Revenue (ARR) is the annualized equivalent of MRR. It provides a longer-term view of recurring revenue and is the standard top-line metric reported by SaaS companies, especially those with annual or multi-year contracts.
ARR is calculated by multiplying MRR by 12, or by summing the annualized value of all active subscriptions. For companies with a mix of monthly and annual contracts, it is important to normalize everything to an annual basis.
ARR is the metric that investors, boards, and analysts focus on when evaluating a SaaS business. Growth rates are typically expressed as year-over-year ARR change. Crossing milestones like $1M ARR, $10M ARR, and $100M ARR are significant inflection points.
Like MRR, ARR should be tracked alongside customer experience metrics. NPS trends, CSAT declines, and churn signals all foreshadow ARR changes. A strong CX program protects and grows ARR by keeping customers happy and expanding.
Related Terms
Monthly Recurring Revenue (MRR)
MetricsThe predictable, recurring revenue a subscription business earns each month from active subscriptions.
Net Revenue Retention (NRR)
MetricsThe percentage of recurring revenue retained from existing customers over a period, including expansion and contraction but excluding new customers.
Customer Lifetime Value (CLV / LTV)
MetricsThe total revenue a business can expect from a single customer account over the entire duration of their relationship.
Expansion Revenue
MetricsAdditional recurring revenue generated from existing customers through upsells, cross-sells, and add-ons.
Related Resources
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