What is ARR (Annual Recurring Revenue)?


ARR, or annual recurring revenue, is a momentum metric that calculates the total revenue a business generates from subscriptions over a one-year period. It is a key performance indicator for subscription-based companies, including SaaS platforms and eCommerce businesses that offer recurring billing models. ARR is often considered a valuation metric, especially for businesses offering minimum subscription terms of 12 months or more. It provides a long-term view of revenue stability and growth, helping businesses understand how predictable and scalable their income is.

What is the difference between ARR and MRR?


ARR is the yearly equivalent of MRR (monthly recurring revenue). While MRR tracks revenue growth month by month, ARR shows how much recurring income is generated annually. Both are important for monitoring the health and progress of a subscription business. There are several ways to calculate ARR, depending on your revenue model. A common approach is to multiply your MRR by 12. If your revenue tends to vary seasonally, it may be more accurate to multiply your quarterly recurring revenue by four to reflect annual performance more realistically.

Why should your subscription business track ARR?


Tracking ARR helps businesses:

  • Measure revenue growth over time
  • Forecast long-term financial performance
  • Assess overall profitability and operational health
  • Understand how customer behaviours affect recurring income
  • By analysing ARR data, you can also gain valuable insights into customer needs, retention patterns and product engagement. This allows you to adapt your offering, improve loyalty, and increase both average order value and lifetime value. ARR is especially useful for investor reporting and internal planning, as it reflects the reliability of your business’s revenue stream and its potential for future scaling.