Annual Recurring Revenue (ARR)
The annualized value of recurring subscription revenue, calculated as MRR multiplied by 12.
Why It Matters
ARR is the primary valuation metric for SaaS companies and the standard way investors and boards measure growth.
How It Works
Multiply current MRR by 12 to get ARR. This assumes current run rate continues, making it a forward-looking projection. ARR is more meaningful than total revenue because it excludes one-time charges and reflects sustainable recurring income.
Real-World Example
A company with $250,000 MRR has $3M ARR, and investors value them at 10x ARR ($30M).
Common Mistakes
Including non-recurring revenue like services or setup fees
Annualizing a single strong month instead of using normalized MRR
Related Terms
The predictable revenue a subscription business earns every month from active subscriptions.
The percentage of recurring revenue retained from existing customers after accounting for churn, downgrades, and expansion.
The total revenue a business can expect from a single customer account throughout their entire relationship.
Annual Recurring Revenue (ARR) FAQs
When should I use ARR vs MRR?
Use MRR for operational decisions and month-to-month tracking; use ARR for board reporting, fundraising, and valuation discussions.
What ARR growth rate is considered good?
The "triple triple double double" benchmark suggests tripling ARR to $1M, again to $3M, then doubling to $6M, $12M, and $24M in successive years.
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