What is ARR (annual recurring revenue)?
The initials ARR stand for annual recurring revenue. It’s the annualized version of MMR, or monthly recurring revenue.
Annual recurring revenue is mainly used by companies selling subscription-based services or products. It is an essential business metric for SaaS companies.
The ARR gives an estimate of the amount of recurring revenue your company can expect to generate on the basis of annual subscriptions.
ARR is one of the best ways to track the health of your subscription business over time. You need to have a thorough understanding of the company’s current financial situation and how to manage it. Whether you’re overestimating the market value of a product, planning to launch a new feature, or doubling your revenue with an extension, it’s vital to know the real impact of your decisions.
How is ARR calculated?
Enter Total Amount in EUROS annual subscriptions
Enter Total amount in EUROS new annual subscriptions
Enter Total revenue from upgrades and add-ons in EUROS
Enter Total amount in EUROS of cancelled or lost subscriptions
How is ARR calculated?
The ARR formula is simple:
Total amount in EUROS (€) for annual subscriptions
+
Total amount in EUROS (€) new annual subscriptions
+
Totalrevenue from upgrades and add-ons in EUROS (€)
–
Total amount in EUROS (€) of cancelled or lost subscriptions
What does ARR stand for?
Let’s take the example of a company selling software with an annual subscription.
It has 153 users who pay an annual subscription fee of 920 euros.
During the year, 10 of the 153 users decided to add options to their subscription, costing them an extra 80 euros per year.
During the year, 7 of the 153 users stopped subscribing and 13 new users took out a subscription.
ARR = 153 * 920 + 13 * 920 + 10 * 80 – 7 * 920 = 140,760 + 11,960 + 800 – 6,440 = 147,080 euros.