ANNUAL RECURRING REVENUE
ARR is recurring revenue over a year.
For a monthly subscription business, it is simply MRR × 12.
FORMULA
Annual recurring revenue formula
For monthly subscriptions, multiply MRR by 12. Add annual contract value only if it is outside the MRR total.
EXAMPLE
$25,000 MRR and $60,000 in separate annual contracts
$25,000 of MRR annualizes to $300,000. Adding $60,000 from a separate annual customer base gives $360,000 ARR.
- ARR from MRR
- $300,000
- Annual contracts
- $60,000
- Total ARR
- $360,000
KEEP THE DEFINITION CLEAN
Do not put one-off revenue in ARR.
Setup work, taxes, and services are revenue, but they are not recurring revenue.
IncludeSubscriptions and recurring committed add-ons
ExcludeSetup fees, services, and one-time purchases
Do not double-countAnnual customers already normalized into MRR
QUESTIONS
ARR questions
How do you calculate ARR?
For a subscription business with monthly recurring revenue, multiply MRR by 12. For annual contracts, use the recurring annual contract value. Add the two only when they cover different customers or revenue streams.
What is the difference between ARR and revenue?
ARR is an annualized run rate of recurring subscription revenue. Revenue records what was earned over a reporting period and can include one-time services, setup fees, and other non-recurring income.
Should annual contracts be included in MRR?
Usually, normalize an annual contract to its monthly value and include it in MRR. If you instead add its annual value separately, do not also include the same customer in MRR or ARR will be double-counted.
What counts as ARR?
Include recurring subscription charges and recurring add-ons. Leave out one-time setup fees, implementation work, taxes, and usage that a customer is not committed to pay again.
Why project ARR from monthly growth?
A growth assumption turns your current run rate into a scenario for the next 12 months. It is not a forecast of cash collected, because churn, expansion, and new sales can change the result.