Sales Dictionary
Annual Recurring Revenue (ARR)
Definition
A metric used by subscription-based businesses to measure the predictable and recurring revenue generated over a year.
Deep Dive
Annual Recurring Revenue (ARR) is a key financial metric predominantly used by subscription-based businesses to measure the predictable and recurring revenue they expect to generate from their active subscriptions over a 12-month period. Unlike total revenue, ARR specifically excludes one-time payments, professional services fees, or variable consumption-based charges, focusing solely on the contracted, repeatable income stream. It provides a clear snapshot of a company's underlying financial health and growth trajectory, indicating the value of its subscription contracts.
Examples & Use Cases
- 1A SaaS company has 1,000 customers each paying $100 per month for a standard subscription, resulting in an ARR of $1,200,000 (1,000 customers * $100/month * 12 months).
- 2A streaming service calculates its total annual revenue from all active subscribers, excluding any pay-per-view one-off purchases, to determine its ARR.
- 3A cybersecurity platform signs a new enterprise client for a three-year contract valued at $360,000; this immediately adds $120,000 to their ARR for the current and subsequent two years.
Related Terms
Monthly Recurring Revenue (MRR)Churn RateSubscription EconomyCustomer Lifetime Value (LTV)