ARR
Annual Recurring Revenue — the annualized value of a subscription business's monthly recurring revenue. MRR × 12.
ARR is the top-line metric for subscription businesses. Calculated as MRR (monthly recurring revenue) times 12, or as the sum of annual contract values across all customers.
ARR only counts recurring revenue — subscriptions, seat licenses, ongoing contracts. It excludes one-time revenue (setup fees, professional services), variable usage-based revenue (booked separately as consumption), and revenue from deals not yet live ("booked ARR" or pipeline).
The metric matters because it's the number investors and boards use to gauge business size. A $1M ARR business is very different from a $10M ARR business, and both are meaningful step-changes in the fundraising conversation.
ARR is misleading in two common cases: - **Very early-stage**: three enterprise contracts at $100K each = $300K ARR, but if two churn, the ARR is a mirage. Track alongside gross churn. - **Usage-billed businesses**: pure API companies don't really have ARR — their revenue is monthly consumption. Annualizing a single month can inflate the picture significantly.
ARR growth is often reported alongside "net new ARR" (change quarter-over-quarter) and "ARR per customer" (average deal size). All three tell you different things about the shape of the business.