ARR (Annual Recurring Revenue) is the annual recurring subscription revenue. The headline metric for investor decks, board reporting and SaaS valuation. Practically MRR × 12, or the direct sum of annual contracts in annual-heavy businesses.
formula
ARR = MRR × 12 or Σ Active Annual Contract Values
$170K monthly MRR → $2.04M ARR. Or 15,000 customers × $99/yr = $1.485M.
why two metrics for the same number
- MRR · daily ops, monthly sales reporting.
- ARR · investors, board, valuation, press.
"$10M ARR" beats "$833K MRR" in any narrative; same shop, same money.
what's not in ARR
- One-time setup fees.
- Professional services / consulting revenue.
- Usage-based overages, if not predictable.
- Training, certification, swag.
Pure ARR is only recurring subscriptions. Discipline matters when talking to investors; loose definitions destroy trust.
NRR (Net Revenue Retention)
NRR = (Starting ARR + Expansion − Contraction − Churn) / Starting ARR × 100
- NRR > 110% · best-in-class. Existing book grows on its own.
- NRR 100-110% · healthy.
- NRR < 100% · losing; net base shrinking.
Example: A SaaS opening US in 2024 went from $1.2M ARR Q1 to $2.4M Q4; 60% new, 30% expansion, 10% price uplift. NRR for the year was 124%; the existing book itself grew, so the Series A multiple priced rich.