ARR (Annual Recurring Revenue)
The normalized annual value of all recurring subscription revenue.
Annual Recurring Revenue (ARR) is the normalized annualized value of all active subscription contracts. ARR captures predictable, repeatable revenue — not one-time fees, services revenue, or variable usage charges.
Context
ARR is the primary valuation metric for SaaS. Venture-backed SaaS companies are typically valued at 5–20x ARR depending on growth rate, retention, and gross margin. At extremes, high-growth public SaaS has traded at 30–50x ARR, though this contracted sharply in 2022–2024.
ARR is distinct from MRR × 12. MRR is a current-state month value; ARR normalizes for contract length and payment frequency. A customer on an annual $12,000 contract has the same ARR as one on a monthly $1,000 contract, even though their cash patterns differ.
A SaaS with 200 customers paying an average $500/month has ARR = $500 × 12 × 200 = $1.2M. If 20% of those customers are on annual contracts prepaid, MRR and ARR formulations still align but cash flow is front-loaded.
ARR doesn't include professional services, implementation fees, or usage-based charges — even if those are material revenue. Many SaaS reports inflate headline ARR by including things that don't truly recur.
Related terms
NRR (Net Revenue Retention)
The percentage of last-year cohort revenue retained this year, net of churn and expansion.
CAC Payback Window
The number of months until a new customer's contribution margin equals the cost to acquire them.
LTV:CAC Ratio
Customer lifetime value divided by customer acquisition cost.
Services that apply this
More B2B & SaaS terms
ICP (Ideal Customer Profile)
A description of the best-fit customer for a B2B product.
ABM (Account-Based Marketing)
Targeting specific named accounts with coordinated multi-channel programs.
MQL (Marketing Qualified Lead)
A lead that marketing judges ready for sales follow-up.
SQL (Sales Qualified Lead)
A lead that sales has accepted as worth active pursuit.