Annual Recurring Revenue (ARR) is the most-reported top-line metric in SaaS. It represents the annualized value of all active recurring subscriptions.
ARR = MRR × 12 (for monthly billing)
Or for annual contracts: sum of all contract values divided by term length.
Why ARR instead of revenue?
Traditional revenue recognition (GAAP) spreads contract value over the service period. A $12,000 annual contract signed October 1 generates only $3,000 in GAAP revenue by December 31.
ARR ignores recognition timing and focuses on the size of the recurring revenue base right now. It's a snapshot of the revenue engine, not a historical measure.
What to include in ARR
Include: - Monthly subscription fees - Annual subscription fees (annualized) - Recurring add-ons, feature upgrades, seat fees - Recurring support or success tiers
Exclude: - One-time setup or onboarding fees - Variable usage fees (unless you normalize a baseline) - Professional services that don't recur - Pilot or POC contracts that haven't converted to subscription
ARR as a fundraising language
When investors ask about ARR, they want to understand the scale and velocity of your recurring business. The three ARR questions in every fundraise:
- What is your current ARR?
- What was your ARR 12 months ago? (→ YoY growth)
- What is your NRR? (→ retention quality)
These three numbers tell the ARR story: how big, how fast, how durable.
Use the ARR Calculator to calculate yours from MRR.