Annual Recurring Revenue (ARR)

The annualized value of all active subscriptions or recurring contracts.

Definition

ARR is the yearly value of a company's recurring revenue from subscriptions or contracts. It is calculated by taking the monthly recurring revenue and multiplying by 12, or by summing all active annual contract values. ARR is the most important metric for SaaS companies and is the primary basis for valuation at most stages.

Why it matters

Your company's valuation is likely a multiple of ARR (e.g., 10-30x for high-growth SaaS). If ARR doubles, your equity could roughly double in value. Track ARR growth to gauge how your stock options are doing.

Example

Your company has 500 customers each paying $2,000/month. MRR is $1M, so ARR is $12M. At a 15x ARR multiple, the company is worth about $180M.

Related terms

Monthly Recurring Revenue (MRR)

The total predictable revenue a company earns each month from subscriptions.

Valuation Multiple

A ratio (like revenue multiple) used to estimate a company's worth relative to a financial metric.

Net Revenue Retention (NRR)

Revenue from existing customers after expansions, contractions, and churn, as a percent of starting revenue.

Churn

The rate at which customers cancel or stop paying for a product.

Bookings

The total value of new contracts signed in a period, regardless of when revenue is recognized.

More from Startup & Venture Basics

This definition is an educational summary. It is not legal, tax, or investment advice. Specific terms in your equity grant or company documents may differ.