What is ARR (annual recurring revenue)?
ARR, or annual recurring revenue, is the annualised value of the recurring subscription contracts a company has in force at a point in time. It counts only repeating charges, such as software subscriptions, and leaves out one-off fees for setup, services or hardware. It is the main size and growth measure for subscription businesses.
Also calledARRannualised recurring revenueMRR (monthly recurring revenue)
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- Counts
- Recurring subscription charges only
- Common formula
- Monthly recurring revenue x 12
- Accounting status
- Not defined by IFRS or GAAP
How ARR works
ARR is usually calculated as monthly recurring revenue times twelve, or as the sum of the annual value of every active contract. It moves through four components: new ARR from new customers, expansion from upgrades and price rises, contraction from downgrades, and churn from cancellations. An ARR bridge, or waterfall, shows the opening figure, each movement and the closing figure for a period. ARR is not an accounting measure: IFRS and US GAAP do not define it, and companies calculate it differently, for example on whether to include usage-based fees or signed contracts that have not yet started. Revenue in the accounts follows revenue recognition rules and lags ARR in a growing company. Metrics built on ARR include net revenue retention, gross revenue retention and the burn multiple. Billing systems and planning tools calculate ARR from contract data.
Common questions
What is the difference between ARR and revenue?+
ARR is a snapshot of the annual value of recurring contracts at a date. Revenue is what the accounts recognise over a period under accounting rules, including one-off fees. In a growing company, ARR runs ahead of revenue.
What is the difference between ARR and MRR?+
MRR, monthly recurring revenue, is the same measure on a monthly basis. ARR is usually MRR times twelve and is preferred by businesses with annual contracts.
Is usage-based revenue included in ARR?+
Practice varies. Some companies include a committed minimum, some annualise recent usage and some exclude it. Whatever the rule, it should be stated and applied consistently.
Software that tracks ARR
PigmentCollaborative business planning across finance and operations.Profile →
AbacumAutomated reporting and planning connected to operational data.Profile →
TabsContract terms driving billing, collections and revenue recognition.Profile →
RilletAI ERP for SaaS companies automating revenue recognition and close.Profile →Part of Accountio’s accounting technology coverage · Glossary
