Annual Recurring Revenue Calculator For Small Business

ARR Formula:

\[ ARR = (Subscriptions \times Price) \times 12 \]

Annual Recurring Revenue (ARR):

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1. What is Annual Recurring Revenue (ARR)?

Annual Recurring Revenue (ARR) is a key metric for subscription-based businesses that measures the predictable revenue a company can expect to receive annually from its customers. It provides a clear picture of the company's financial health and growth trajectory.

2. How Does the Calculator Work?

The calculator uses the ARR formula:

\[ ARR = (Subscriptions \times Price) \times 12 \]

Where:

$ Subscriptions $ — Number of active subscriptions
$ Price $ — Monthly subscription price per unit ($)
$ 12 $ — Months in a year

Explanation: The formula calculates total monthly revenue from subscriptions and multiplies by 12 to get the annual recurring revenue.

3. Importance of ARR Calculation

Details: ARR is crucial for business planning, investor reporting, and measuring growth. It helps businesses understand their revenue stability, forecast future earnings, and make informed decisions about scaling operations.

4. Using the Calculator

Tips: Enter the total number of active subscriptions and the monthly price per subscription. Both values must be positive numbers to calculate accurate ARR.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ARR and MRR?
A: ARR (Annual Recurring Revenue) represents yearly subscription revenue, while MRR (Monthly Recurring Revenue) represents monthly subscription revenue. ARR = MRR × 12.

Q2: Should I include one-time purchases in ARR?
A: No, ARR only includes predictable, recurring revenue from subscriptions. One-time purchases should be tracked separately.

Q3: How often should I calculate ARR?
A: Most businesses calculate ARR monthly to track growth trends and make timely business decisions.

Q4: What is a good ARR growth rate for small businesses?
A: A healthy growth rate varies by industry, but typically 20-30% year-over-year growth is considered strong for most SaaS and subscription businesses.

Q5: How does churn affect ARR?
A: Customer churn (cancellations) directly reduces ARR. It's important to track both new subscription growth and churn rate to understand net ARR changes.