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    Glossary›ARR
    Glossary · Metric

    What is Annual Recurring Revenue (ARR)?

    Definition

    Annual Recurring Revenue (ARR) is the total amount of predictable, subscription-based revenue a company expects to receive annually from all active customer contracts. ARR excludes one-time fees and is the key indicator of business health for SaaS and subscription-model companies. It represents the recurring revenue run rate normalized to a one-year period.

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    Subscription RevenueMetricsSaaSForecastingGrowthRetentionARR
    In short

    ARR at a glance.

    Total yearly predictable subscription revenue
    Core SaaS health metric and valuation driver
    Excludes one-time and professional services revenue
    Normalized to annual basis for comparison

    Why ARR Matters More Than Revenue

    Unlike total revenue (which can include one-time sales, implementation fees, or consulting), ARR measures only recurring subscription income. This matters because recurring revenue is predictable and allows better forecasting, while one-time revenue is lumpy. Investors, lenders, and internal planners all track ARR closely because it reveals the true growth trajectory and health of a subscription business.

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    ARR — frequently asked

    Multiply the number of active subscriptions by the average annual subscription price. Alternatively, sum all annual contract values across all customers. If subscriptions are monthly, multiply the monthly recurring revenue (MRR) by 12. ARR should be measured at a point in time, such as quarter-end.

    High-growth SaaS targets 20-40% year-over-year ARR growth in early stages, declining to 10-20% as scale increases. Growth depends on industry, funding, and market maturity; the key is consistent, predictable growth backed by strong retention and expansion.

    Start with current ARR, add new customer ARR, add expansion revenue from existing customers, and subtract churn. This 'cohort retention' model helps isolate whether growth comes from acquisition or expansion, each with different cost and difficulty profiles.

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