Revenue metric
ARR (Annual Recurring Revenue)
Annual Recurring Revenue (ARR) is the annualized projection of recurring subscription revenue. It is mathematically equivalent to MRR × 12 for businesses with monthly billing, but is typically the headline number for businesses with annual subscriptions or larger contract sizes.
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Formula
ARR = MRR × 12 (or sum of active annual subscription values)
Where:
- MRR = Monthly Recurring Revenue, calculated separately.
- annual subscription values = Full annual contract values for customers on annual billing.
Worked example
If MRR is $4,221.25, ARR is $4,221.25 × 12 = $50,655. For a business with mostly annual contracts, ARR is the natural reporting unit: 30 customers on $5,000/year contracts = $150,000 ARR.
What it tells you
- The annualized run-rate of the recurring engine.
- A clean conversation unit at scale — '$10M ARR' is more readable than '$833,333 MRR'.
- The annualized scale for fundraising or acquisition discussions.
What it does NOT tell you
- Whether the underlying MRR is stable or growing. ARR can be flat or declining even when monthly numbers move.
- Cash-basis revenue. ARR is a projection; actual cash collected can be very different.
- Customer concentration risk. A $100k ARR business with 1 customer is fundamentally different from 100 customers.
Common miscalculations
- Reporting ARR for businesses that are primarily one-time or service revenue. ARR only applies to recurring contracts.
- Counting annual contracts that have not been signed or paid as ARR. Pipeline is not ARR.
- Including churned customers in ARR for the calendar year they churned. ARR is point-in-time.
What is a good ARR?
See the directional range on the SaaS MRR growth rate benchmark page →
Frequently asked
- Should indie SaaS use ARR or MRR as the primary metric?
- MRR until you cross $1M ARR — monthly cadence matches indie operator decision-making. Switch to ARR above $1M when monthly variance becomes less meaningful.
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