Annual Recurring Revenue (ARR)

« Back to Glossary Index

What is annual recurring revenue?

Annual recurring revenue (ARR) looks at how recurring or subscription-based revenue grows over time. ARR is a good metric for long-term planning for subscription models that have longer contract durations.

How to calculate annual recurring revenue: formula and example

You calculate annual recurring revenue by multiplying your monthly recurring revenue (MRR) by 12 (months).

Formula for calculating annual recurring revenue (ARR)

Formula for calculating annual recurring revenue (ARR)


Let’s take a look at an example of how to calculate ARR. Your customer subscribes to a one-year contract with monthly billings of $500. The ARR for that customer is = $6,000.  How the customer is billed is irrelevant to the formula. What is calculated is the total contract value for a year.

Examples of using ARR in financial planning

  • Growth from new contracts, including those with different term lengths
  • Net and gross expansion/contraction from existing customers
  • Trends in your average selling price

Additional resources

Back to the Churnopedia: SaaS Terms and Metrics

« Back to Glossary Index