Definition
Annual Recurring Revenue (ARR)
ARR is the predictable, recurring revenue a subscription business expects to earn over a year from its contracts.
ARR is the annualised value of recurring subscription revenue, excluding one-time fees. It is a headline metric for SaaS and subscription startups because it represents stable, repeatable revenue rather than lumpy sales. MRR (monthly recurring revenue) is the monthly equivalent — ARR is roughly twelve times MRR.
Growth in ARR, combined with low churn and high net revenue retention, is what late-stage and crossover investors look for. ARR multiples are a common way to value SaaS companies in private and public markets.
Related terms
- Net Revenue RetentionNet revenue retention measures how recurring revenue from a cohort of existing customers changes over a year, after upsells, downgrades and churn.
- Monthly Recurring Revenue (MRR)MRR is the predictable, repeating subscription revenue a business earns each month, a core health metric for SaaS and subscription companies.
- Churn RateChurn rate is the percentage of customers or recurring revenue a company loses over a given period — the mirror image of retention.
Plain-English explainer from Investdesk Investors Encyclopedia. General information, not financial advice.