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Financial Metricsessential

Annual Recurring Revenue (ARR)

The annualized value of recurring revenue, typically MRR multiplied by 12.

Formula
ARR = MRR × 12
Example

If your MRR is $50,000, your ARR is $600,000. This is how most SaaS companies report their scale.

Good Range

Growing 2-3x year-over-year is excellent for early-stage

Warning Range

Flat or declining ARR indicates stagnation

Complete Definition

Annual Recurring Revenue (ARR) is the yearly value of your recurring revenue from subscriptions. It's the annualized version of MRR and is commonly used by investors and larger SaaS companies to evaluate business scale and health.

How to Calculate ARR

ARR = MRR × 12

Or for annual contracts: ARR = Σ (Annual contract values of all customers)

When to Use ARR vs MRR

- **MRR**: Better for operational decisions, short-term planning, monthly patterns - **ARR**: Better for strategic planning, fundraising, company valuation, board reporting

ARR Milestones

- $100K ARR: "Ramen profitable" threshold - $1M ARR: Serious business, often triggers Series A interest - $10M ARR: Scale-up stage, proven product-market fit - $100M ARR: Enterprise value, potential for IPO consideration

Important Considerations

- Don't include one-time fees in ARR - Normalize annual contracts to monthly values - Account for usage-based revenue carefully - Track both gross and net ARR - Consider contracted vs recognized ARR

Used in:Financial ProjectionsInvestor Reporting

Related Terms

Monthly Recurring Revenue (MRR)
The predictable, recurring revenue generated each month from subscription customers.
Net Revenue Retention (NRR)
The percentage of recurring revenue retained from existing customers, including expansion.
Churn Rate
The percentage of customers or revenue lost during a specific time period.

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