Annual Recurring Revenue (ARR)
What is ARR?
ARR is annual recurring revenue, the annualized subscription revenue base of a SaaS company.
ARR expresses the current recurring subscription base on an annual scale. It is useful when discussing company size or changes in recurring revenue, but the reporting date matters. A December exit rate can differ substantially from the revenue earned during the year that just ended.
Also known as: Annual Recurring Revenue
Formula
ARR = MRR × 12 | Variable | Meaning |
|---|---|
MRR | Monthly recurring revenue. |
How to use it
- Start with a reconciled recurring revenue schedule, excluding one-time services and uncommitted pipeline.
- For a monthly run-rate definition, multiply current MRR by 12. If you use a contracted ARR definition, document when a signed contract enters and leaves the measure.
- Show the starting ARR, new subscriptions, expansion, contraction, and churn alongside the ending balance. Label the date and currency.
Worked example
Hypothetical worked scenario
A fictional company begins a year at $20,000 MRR and finishes December at $35,000 MRR. It also sells a $15,000 implementation project in December.
December exit ARR = $35,000 × 12 = $420,000. Starting ARR = $20,000 × 12 = $240,000. The increase in the run rate is $180,000.
The company cannot report $420,000 as revenue earned during that year from this calculation. It must use its actual revenue schedule for that question. The implementation project is excluded from ARR.
Calculate with your numbers
ARR = MRR × 12 | Variable | Meaning |
|---|---|
MRR | Monthly recurring revenue. |
Worked example
- MRR
- $10,000
- → ARR
- $120,000
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Open the ARR calculator for a focused view of the inputs.
What the result tells you
Use a consistent ARR definition when comparing growth periods. A change from counting only live subscriptions to counting signed future contracts can create apparent growth without new service revenue. A useful board note explains such policy changes and separately shows their effect.
Assumptions and common mistakes
- ARR is not cash in the bank, a valuation, or a promise that all customers will renew.
- Do not add expected renewals or unsigned deals to current ARR. Keep forecasts in a separately labeled series.
- Annualizing a temporary usage spike can overstate the recurring base. Explain how variable consumption is handled.
Check how your team defines ARR against these rules.
See a worked MRR reconciliation, from opening to closing MRR, with a downloadable ledger.
Compare related measures
Frequently asked questions
Is ARR always 12 times MRR?
It is under the monthly run-rate convention used by this site. A company using a contracted or committed definition may report something different; reconcile the definitions before comparing.
Can ARR grow while cash falls?
Yes. Acquisition spending, payment terms, hiring, and collections affect cash on a different schedule. Read ARR growth together with a cash forecast.
Sources and methodology
The references below explain the underlying methods. Our worked scenarios use hypothetical figures; they are not company results or current market benchmarks.
- Stripe: Annual recurring revenue
Normalizing subscriptions to an annual basis.
Found an error or a definition that differs from your reporting? Send a correction with the page URL and the method you use.