What is annual recurring revenue?
Annual recurring revenue, or ARR, is the value of your recurring subscription revenue over a year. It is the headline number for a subscription business, and the one investors size a company by.
ARR is MRR viewed annually. It smooths out monthly noise and is the standard way SaaS reports scale.
The ARR formula.
The simplest version: ARR = MRR times 12. If you price in annual contracts, ARR = number of customers times average annual contract value.
Like MRR, ARR counts recurring revenue only. One-time fees and services do not belong in it.
A worked example.
Your MRR is 100,000 dollars. ARR is 100,000 times 12, which is 1.2 million dollars.
What counts toward ARR?
Recurring subscription revenue, annualized. Multi-year deals count at their annual value, not their total, so a three-year, 300,000 dollar contract is 100,000 dollars of ARR. Total contract value is a separate number.
Watch the difference between ARR and bookings. ARR is the recurring run-rate today, not everything you have signed.
How to grow your ARR.
Add logos, expand existing accounts, or retain more revenue. The most capital-efficient ARR usually comes from expansion and retention, not just new logos.
Organic search lowers the cost of new ARR, since it acquires customers without per-click spend. See the Workwize numbers.