~2 min read
Annual Recurring Revenue (ARR) is the annualized value of all recurring subscription contracts. For most SaaS businesses, it's simply MRR × 12.
ARR vs MRR
ARR = MRR × 12 — for pure monthly subscription businesses.
For businesses with annual contracts, ARR is calculated directly from contract values: a $12,000/year contract contributes $12,000 ARR regardless of billing frequency.
The MRR × 12 method is an approximation that works well for monthly billing. For annual or multi-year contracts, calculate ARR from contract terms directly.
What counts as ARR (and what doesn't)
Include: - Monthly or annual subscription fees - Recurring add-ons and seat fees - Recurring professional services (fixed monthly retainer)
Exclude: - One-time setup fees - Non-recurring professional services - Usage-based revenue that's genuinely variable (some companies include a normalized baseline, but conservative ARR excludes it)
ARR milestones and what they unlock
| ARR | What it means |
|---|---|
| $1M | Standard Series A threshold (some investors require this) |
| $3M | Most Series A investors require > $3M with 100%+ YoY growth |
| $10M | Series B territory; efficiency metrics start mattering |
| $25M+ | Series C/D; institutional growth investors engage |
| $100M+ | IPO-eligible; public market comparables apply |
YoY growth rate benchmarks
Investor shorthand: you want to grow ARR at "T2D3" — triple, triple, double, double, double — meaning 3× growth for 2 years, then 2× for 3 years.
| ARR range | "Good" YoY | "Great" YoY |
|---|---|---|
| < $1M | 100%+ | 200%+ |
| $1M–$5M | 80–100% | 150%+ |
| $5M–$20M | 60–80% | 100%+ |
| $20M–$100M | 40–60% | 80%+ |
| $100M+ | 25–40% | 60%+ |
ARR projection formula
Projected ARR = Current ARR × (1 + Monthly Growth Rate)^Months
At $1M ARR growing 8%/month: - 12 months: $1M × (1.08)^12 = $2.52M - 24 months: $1M × (1.08)^24 = $6.34M
Frequently asked questions
What does this calculator do? Convert MRR to ARR, calculate Year-over-Year growth versus last year's ARR, and project ARR at 12 and 24 months given a monthly growth rate.