Glossary

Annual Recurring Revenue (ARR)

Definition:

Annual Recurring Revenue (ARR) is a metric that shows the amount of money that comes in every year over the course of a subscription or contract. Unpacked further, its predictable revenue that you can count on every year.


What is ARR vs revenue?

The difference between these two metrics is that ARR only measures your company’s subscription-based revenue, while total revenue considers all incoming cash to your business.
Is ARR annual run rate or annual recurring revenue?
It’s both! These two terms, that ended up with the same initials, define the same thing.


What is ARR formula?

Given that ARR is the annualization of your Monthly Recurring Revenue (MRR), the easiest way to calculate ARR is to multiply your MRR by 12.

For example, if your MRR is $100,000 then your ARR is $1.2 million

However, calculating your ARR that way doesn’t take into account the fluctuation of month to month sales.That’s why many businesses use their Quarterly Recurring Revenue (QRR) instead.


What is a good annual recurring revenue?

While there is no definitive benchmark for what a company’s ARR should be, most VC firms prefer to invest in startups that achieve 15–20% ARR growth.


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