ARR (Annual Recurring Revenue)
ARR definition for SaaS and AI founders: what it means, how to calculate it, and common pitfalls when reading it in dashboards.
ARR is the annualized value of recurring subscriptions. For subscription businesses it is simply MRR × 12, which makes it a snapshot of run-rate, not a forecast.
Formula
ARR = MRR × 12
In practice
ARR does not include one-off or usage-based revenue and can overstate the year if churn is high.
Related terms
Related
- ARPAAverage MRR per paying customer.
- CACSales and marketing spend per new customer.
- ChurnCustomers or recurring revenue lost in a period.
- COGSThe direct cost of delivering your product to existing customers.
- Contribution marginRevenue minus all variable costs, including variable sales costs.
- Expansion MRRMRR added by existing customers through upgrades or more seats.
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