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ARR Formula:
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Annual Recurring Revenue (ARR) is a key metric for subscription-based businesses that measures the predictable annual revenue generated from subscriptions. It's calculated by multiplying the Monthly Recurring Revenue (MRR) by 12.
The calculator uses the ARR formula:
Where:
Explanation: This simple calculation projects your monthly subscription revenue to an annual figure, providing a standardized view of your recurring revenue stream.
Details: ARR is crucial for SaaS and subscription businesses as it helps in forecasting growth, evaluating business health, attracting investors, and making strategic decisions about resource allocation and expansion.
Tips: Enter your Monthly Recurring Revenue in dollars. The value must be greater than 0. The calculator will automatically compute your Annual Recurring Revenue.
Q1: What's the difference between ARR and revenue?
A: ARR specifically measures predictable, recurring revenue from subscriptions, while total revenue may include one-time sales, services, and other non-recurring income.
Q2: Should I include one-time fees in MRR calculation?
A: No, MRR should only include recurring subscription fees. One-time fees, setup charges, or professional services should be recorded separately.
Q3: How often should I calculate ARR?
A: Most businesses calculate ARR monthly to track growth trends, but it's particularly important during financial reporting periods and when making strategic decisions.
Q4: What is a good ARR growth rate?
A: Growth rates vary by industry and company stage, but typically, SaaS companies aim for 20-40% year-over-year ARR growth in their expansion phases.
Q5: How does churn affect ARR?
A: Customer churn directly reduces ARR. It's important to calculate net ARR (including new customers, expansions, and churn) rather than just gross ARR.