Annual Recurring Revenue (ARR)

Annual Recurring Revenue (ARR) is a metric used by subscription-based businesses to measure the predictable and recurring Revenue generated from customers on an annual basis. It represents the total amount of Revenue that a company expects to receive from its customers for the year, excluding one-time fees or non-recurring Revenue sources.

ARR is calculated by taking the monthly recurring Revenue (MRR) and multiplying it by 12. This allows businesses to forecast their Revenue and assess their growth over time.

Examples:

• If a software company charges $100 per month for its subscription service and has 1,000 subscribers, the MRR is $100,000. Therefore, the ARR would be $100,000 x 12 = $1,200,000.
• A SaaS company offers a yearly subscription for $1,200. If they have 200 subscribers, the ARR would be $1,200 x 200 = $240,000.

Use Cases:

• Investors often look at ARR to evaluate the financial health and growth potential of subscription businesses.
• Companies use ARR to set Revenue targets, measure performance, and make strategic decisions regarding customer acquisition and retention.