What is ARR?
ARR (Annual Recurring Revenue) is the annualized value of your recurring subscription revenue. It's calculated by multiplying your MRR by 12. ARR is the standard metric for communicating SaaS revenue scale to investors, board members, and in fundraising contexts.
How to Calculate ARR
ARR should only include recurring revenue. One-time fees, setup charges, and usage-based overages that aren't predictable should be excluded.
Calculation Example
Your current MRR breakdown:
- 50 customers on $49/mo plan: $2,450
- 20 customers on $99/mo plan: $1,980
- 5 customers on $199/mo plan: $995
ARR vs MRR: When to Use Each
Use MRR when...
- • Tracking month-to-month growth
- • Analyzing churn and expansion trends
- • Running monthly operations
- • Company is under $1M ARR
Use ARR when...
- • Communicating with investors or board
- • Comparing to industry benchmarks
- • Setting annual targets
- • Company is above $1M ARR
Most SaaS businesses track both. MRR is the operational metric—you use it to make day-to-day decisions. ARR is the strategic metric—you use it to communicate scale and set annual goals.
Common ARR Mistakes
- Including one-time revenue. Setup fees, consulting, and one-time charges aren't recurring and shouldn't be in ARR.
- Counting trialing users. Subscriptions in trial status haven't committed to paying yet. Exclude them.
- Double-counting annual contracts. If a customer pays $1,200 for an annual plan, their MRR contribution is $100, not $1,200. ARR = $100 × 12 = $1,200.
- Ignoring downgrades. ARR should reflect current subscription values, not the original contract amount.
ARR Milestones
In the SaaS world, ARR milestones are commonly used to describe company stage:
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