1. What is Annual Recurring Revenue (ARR)?

ARR (Annual Recurring Revenue) is a key metric for subscription-based businesses that measures the predictable revenue a company can expect to receive annually from its customers. It's calculated by multiplying the monthly predictable revenue by 12.

2. How Does the Calculator Work?

The calculator uses the ARR formula:

Where:

• \( Predictable\ Revenue \) — Monthly recurring revenue amount in dollars
• \( 12 \) — Number of months in a year

Explanation: This simple multiplication converts monthly recurring revenue into an annualized figure, providing a clear view of predictable yearly income.

3. Importance of ARR Calculation

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.

4. Using the Calculator

Tips: Enter your predictable monthly revenue in dollars. The value must be greater than zero. The calculator will automatically compute the annual recurring revenue.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ARR and MRR?
A: MRR (Monthly Recurring Revenue) measures predictable monthly income, while ARR annualizes this figure by multiplying MRR by 12.

Q2: Should I include one-time payments in ARR?
A: No, ARR should only include predictable, recurring revenue. One-time payments or non-recurring charges should be excluded from this calculation.

Q3: How often should ARR be calculated?
A: ARR should be calculated regularly, typically monthly or quarterly, to track growth trends and business performance over time.

Q4: What is a good ARR growth rate?
A: A good growth rate varies by industry and company stage, but typically 20-40% year-over-year growth is considered strong for SaaS companies.

Q5: Can ARR decrease?
A: Yes, ARR can decrease due to customer churn, downgrades, or price reductions. Monitoring ARR changes helps identify business health issues.