Annual Recurring Revenue (ARR)
Annual recurring revenue (ARR) is the yearly value of a company's active subscription contracts, counting only repeatable revenue and excluding one-time fees such as setup or services.
Also called: ARR, annualized recurring revenue
Why it matters
ARR is the headline metric for subscription businesses because it shows the predictable revenue base the company carries into each year. Sales and marketing plans are built backward from ARR targets: new ARR from new customers, expansion ARR from upsells, and lost ARR from churn and downgrades. Board decks and fundraising conversations usually start with it.
ARR is not the same as recognized revenue or bookings. Revenue follows accounting rules about when money is earned, and bookings include one-time items. Monthly recurring revenue (MRR) is the same idea measured per month, so ARR is often MRR multiplied by 12. Companies should define clearly whether trials, usage fees and discounts count.
Example
A company sells analytics software on annual plans. It has 40 customers paying $2,000 a month and 10 customers paying $5,000 a month. Its MRR is $80,000 plus $50,000, or $130,000, so its ARR is $1,560,000. A one-time $10,000 onboarding fee paid by a new customer adds to revenue that quarter but not to ARR.
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