Startup Dictionary
ARR
Definition
Annual Recurring Revenue; a key metric for subscription-based businesses showing yearly normalized revenue.
Deep Dive
ARR, or Annual Recurring Revenue, is a critical metric primarily used by subscription-based and Software-as-a-Service (SaaS) businesses to normalize and predict their yearly revenue stream. It represents the value of the predictable, recurring revenue components of a company's subscriptions, calculated over a 12-month period. ARR provides a clear, forward-looking indicator of a company's financial health and growth trajectory, differentiating recurring income from one-time sales or professional services revenue.
Examples & Use Cases
- 1A SaaS company reporting an ARR of $15 million, indicating its consistent subscription income from annual contracts
- 2A cloud computing provider tracking its ARR to project future revenue growth based on its expanding client base
- 3A cybersecurity firm selling yearly software licenses to businesses uses ARR to forecast its annual financial performance and investor presentations
Related Terms
Monthly Recurring Revenue (MRR)Lifetime Value (LTV)Churn RateSubscription Economy