The standard size and growth metric for subscription businesses. Quoted as "$X ARR" or "$X million ARR" - the recurring revenue rate of currently-active subscriptions.

Definition

ARR (Annual Recurring Revenue) - the total subscription revenue your business can expect to collect over a normalized year, calculated by taking current MRR and multiplying by 12 (or equivalently, summing all subscriptions at their annual value).

How to calculate it

ARR = MRR × 12

A business with $25,000 of MRR is at $300,000 ARR.

Common uses

  • Quoting business size- "Acme is at $5M ARR"
  • Growth rate - usually quoted YoY (year-over-year)
  • Investor conversations - the standard metric in SaaS funding
  • Sales targets- "hit $X ARR by year end"

Watch out

ARR is not actual revenue billed in the year. A business growing from $400K to $600K ARR over the year actually bills somewhere between $400K and $600K, depending on growth pattern - not $600K.

Only recurring revenue counts. One-time setup fees, professional services, and overage charges are excluded.

For the full explanation, see What Is Annual Recurring Revenue (ARR)?

Related terms