SaaS

What is Annual Recurring Revenue (ARR)?

Annual Recurring Revenue (ARR) measures yearly revenue generated from recurring subscriptions. It helps evaluate long-term revenue stability.

Full FormAnnual Recurring Revenue
CategorySaaS
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FORMULA

How to Calculate Annual Recurring Revenue (ARR)

Annual Recurring Revenue (ARR) measures recurring revenue on a yearly basis, providing a long-term revenue view. This metric helps evaluate business scale, and aRR is useful for growth analysis. It supports investor and planning discussions.

Annual Recurring Revenue (ARR) Formula
Annual Recurring Revenue (ARR)=
MRR × 12

Simple Example

If your annual contract value was $360,000

ARR = 360,000
Yearly
Revenue
$360,000
ARR

Marketing Platforms that supports Annual Recurring Revenue (ARR)

These platforms provide the data needed to measure or calculate Annual Recurring Revenue (ARR) in Two Minute Reports.

Most Popular
Shopify

Shopify

E-Commerce
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Most Popular
Google Analytics 4

Google Analytics 4

Web Analytics
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API Bridge

API Bridge

Other sources
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HubSpot

HubSpot

Customer relationship management
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Frequently Asked Questions

Annual Recurring Revenue (ARR) measures the value of recurring revenue normalized to a one-year period, calculated by annualizing all subscription contracts. For monthly contracts, multiply MRR by 12 (ARR = MRR × 12). For annual contracts, sum all annual contract values. If you have $100,000 in annual contracts and $10,000 MRR from monthly subscriptions, ARR is $220,000 ($100,000 + $10,000 × 12). ARR excludes one-time fees like implementation, setup, or professional services. It provides a standardized metric for evaluating company size, growth rate, and valuation in the SaaS industry. ARR is particularly common for B2B SaaS companies where annual contracts are prevalent.
ARR, bookings, and revenue measure different aspects of business performance. ARR is the annualized value of active recurring subscriptions at a point in time—a snapshot metric showing current run rate. Bookings measure the total contract value signed during a period, including multi-year deals—a forward-looking metric. Revenue (GAAP) is the actual money recognized according to accounting rules over the contract period—a backward-looking metric. For example, signing a 3-year $300K deal creates $300K in bookings, $100K ARR (annual value), but revenue is recognized monthly over 36 months ($8.3K/month). Investors focus on ARR for valuation, sales teams track bookings for quota attainment, and finance reports GAAP revenue for compliance.
Good ARR growth rates vary dramatically by company size and stage. Early-stage SaaS startups should target 100-300%+ annual ARR growth as they scale from small base. Growth-stage companies (pre-IPO) often aim for 50-100% annual growth. Public SaaS companies typically grow 20-40% annually. The Rule of 40—growth rate plus profit margin should exceed 40%—helps balance growth and profitability. Triple-triple-double-double-double (T2D3) represents exceptional SaaS growth: triple ARR two years, double the next three years, reaching $100M ARR in 5-7 years. Growth rates naturally decline as companies mature and revenue bases expand. Focus on sustainable, efficient growth where customer acquisition costs and retention economics remain healthy rather than growth at any cost.
Accelerating ARR growth requires strategic focus across acquisition and expansion. Invest in sales and marketing to increase new customer acquisition velocity—this directly drives ARR growth. Move upmarket to enterprise customers with larger contract values—one $100K deal impacts ARR more than ten $10K deals. Implement land-and-expand strategy where customers start small then grow over time through upsells and expansion. Develop new products or features enabling cross-sell opportunities. Optimize pricing by raising prices where value justifies it and creating premium tiers. Expand into new geographic markets or industry verticals. Improve win rates and sales cycle length so the same team closes more deals faster. Reduce churn aggressively since every dollar of prevented churn compounds over time. Focus on net revenue retention above 100% where existing customers organically grow their spend.