ARR
Annual Recurring Revenue (ARR) is a key metric for subscription-based businesses that shows the predictable yearly income generated from their active customer contracts.
How it works
It is calculated by taking the value of all recurring subscription contracts for a year and normalizing them to an annual figure, even if customers pay monthly. This metric is crucial for SaaS companies as it measures financial health, growth stability, and is a primary factor in business valuation.
Examples
- 1.A project management SaaS tool with 100 customers each on a $50/month plan has an ARR of $60,000.
- 2.A company forecasting its growth might report that its ARR increased from $2 million to $3.5 million year-over-year.
- 3.Investors will often look at a startup's ARR growth rate to decide whether to provide further funding.
