What is ARR?
Annual Recurring Revenue
Annual Recurring Revenue (ARR) is the predictable yearly revenue from subscription customers, normalized to an annual figure.
ARR = Monthly Recurring Revenue × 12- ARR
- Annual Recurring Revenue (ARR) is the predictable yearly revenue from subscription customers, normalized to an annual figure.
Why ARRmatters
North-star metric for SaaS valuation and operations. ARR growth rate + retention = company health. Investors value SaaS companies at 5-15x ARR based on these two factors.
Worked example
Plug a real number into the formula to see ARRin action:
Numbers are illustrative.Try our Customer LTV Calculatorfor your real numbers.
Common mistakes with ARR
- 1
Reporting MRR without separating new, expansion, contraction, churn. Net new MRR is the only number that matters for growth.
- 2
Counting trial signups as the conversion event. Activated trials (defined by an action) is the right gate.
- 3
Ignoring product-qualified leads. PQLs convert 3-5× higher than marketing-qualified leads.
How to improve ARR
Move from MQL to PQL definitions. PQLs convert 3-5× better and reduce sales waste.
Build an activation metric tied to value realization (e.g. "X events in 7 days"). Drive trial users to that bar.
Use NRR as the north-star: 110%+ NRR means the business compounds without acquiring new customers.
Common questions about ARR
What is ARR?▾
How is ARR calculated?▾
Why does ARR matter for marketing teams?▾
Related terms
Need help applying ARRto your business?
Book a free 30-min audit. We will benchmark your ARRagainst your industry and flag what to fix first.
Book a free audit