Annual Recurring Revenue (ARR)
Definition
Annual recurring revenue (ARR) is the annualized value of a company's recurring subscription revenue. Calculated by multiplying MRR by twelve, ARR provides a macro view of revenue scale and is the primary metric investors use when benchmarking SaaS companies above $1 million in revenue.
Formula
Overview
Annual recurring revenue (ARR) takes your monthly recurring revenue and expresses it as an annual figure. While MRR is more useful for tracking short-term momentum, ARR is the benchmark investors and analysts reference when comparing SaaS businesses or discussing valuations.
ARR is most meaningful for companies that have crossed roughly $1M ARR, at which point it becomes the standard reporting metric in fundraising materials and board decks. Below that threshold, MRR is typically more practical because monthly fluctuations are proportionally larger.
It is important to exclude one-time fees, professional services revenue, and usage-based overages from the ARR calculation unless those charges are contractually recurring. Mixing non-recurring revenue into ARR inflates the metric and erodes investor trust during due diligence.
Example
If a startup reports $85,000 in MRR, its ARR is $85,000 × 12 = $1,020,000, crossing the symbolic $1M ARR milestone.
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