What is Annual Recurring Revenue (ARR)?
ARR is the annualized value of your recurring revenue, almost always computed as MRR times 12. It describes what the next twelve months are worth if the book stopped changing today.
ARR and MRR carry exactly the same information. ARR exists because boards, investors and comparables are quoted in annual terms, and because a business selling annual contracts thinks in years rather than months.
Two conventions are in circulation. The common one, and the one nearly every reporting tool uses, is MRR x 12. The other counts only the contracted annual value of subscriptions with annual terms, which produces a different and usually smaller number. Mixing the two inside one company is how two decks end up disagreeing about the same quarter.
How to calculate ARR
ARR = MRR x 12
- MRR
- normalized monthly recurring revenue at the end of the period
ARR example
Given
- MRR at the end of the month: $50,230
ARR is a run rate, not a forecast. It says what a year at today's book is worth, and it assumes nothing changes, which is the one thing you can be sure of.
Why ARR matters
- It is the unit the market prices you in. Valuation multiples, funding-round thresholds and most public comparables are quoted against ARR.
- For a business selling annual contracts, ARR maps to how customers actually buy, which makes it the more natural number to plan against.
Common ARR mistakes
Treating ARR as bookings or as revenue
ARR is neither. Bookings are what customers committed to, recognized revenue is what accounting has earned, and ARR is a snapshot run rate. They rarely match, and they are not supposed to.
Annualizing a spiky month
Multiplying an unusually good month by twelve annualizes the luck too. If one enterprise deal doubled MRR in a month, ARR just doubled on the strength of a single signature.
How Kometrics computes ARR
Kometrics reports ARR as MRR x 12, the standard convention, from the same movement ledger that produces MRR. There is no separate ARR pipeline to drift out of sync: change anything about how a subscription is counted and both numbers move together.
Related terms
MRR is the normalized monthly value of every active subscription you have right now. It is a run rate, not a cash figure: it answers what a month of your current book is worth, not what landed in the bank.
Net MRR movementNet MRR movement is the total change in MRR over a period once every movement is added up: new business, expansion and reactivation on one side, contraction and churn on the other. It is the bridge between where MRR started and where it ended.
ARPAARPA is your recurring revenue divided by the number of paying accounts: what the average customer is worth per month. It is also called ARPU or ARPC, with account, user and customer used loosely to mean the same thing in most SaaS reporting.
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Kometrics connects to Stripe, Paddle, Creem and Asaas and computes ARR continuously, with every movement behind it. Free under $1,000 MRR.
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