ARR
Annual Recurring Revenue
The annualized value of your recurring revenue. It's the number VCs care about most and the one most easily inflated. Make sure you know what's actually in yours.
If you have 100 customers paying $1,000/month each, your MRR is $100,000 and ARR is $1.2M. But if 20 of those customers are on month-to-month pilots with 50% historical conversion, your 'real' ARR is probably closer to $1.08M.
ARR is the north star metric for SaaS and the most creatively calculated number in every board deck.
What belongs: contracted recurring revenue, annualized. What doesn't: one-time fees, services, "verbal commitments" from unsigned customers.
The games people play: multi-year deals counted at full upfront value. Pilots that might not convert. Churn ignored until it actually happens. Your ARR should reflect reality, not aspiration. Investors figure out the difference eventually.
Define ItOther Definitions
“The predictable, subscription-based income a company expects to generate each year from subscriptions, renewals, and upgrades. Excludes one-time purchases and non-recurring revenue.”
“Measures recurring contracts with a service length of one year or more, excluding shorter-term or non-recurring revenue. Often calculated as MRR × 12.”
“The predictable, subscription-based revenue a company expects to earn over a 12-month period from active contracts. Distinct from annualized run rate, which is a projection.”
“The yearly revenue a company expects from its customers in subscription-based business models, calculated as average MRR × 12.”
The formula is simple: MRR × 12 or sum of annual contract values. The complexity is in what you include.
Salesforce emphasizes "predictable, subscription-based" revenue. ChartMogul specifies contracts of one year or more. DealHub distinguishes between actual ARR and "annualized run rate" (a projection). They're all trying to say the same thing: ARR should reflect money you're actually contracted to receive, not money you hope to get.
The test: if a customer cancelled tomorrow, would that revenue still count? If yes, it shouldn't be in ARR. Services revenue, one-time fees, and unsigned renewals all fail this test. But they show up in board decks anyway.
MistakesCommon Mistakes
Including one-time implementation or services fees in ARR
Counting multi-year deals at full upfront value instead of annual
Not removing churned customers promptly from calculations
Including verbal commitments or unsigned contracts
Growing ARR but missing targets?
The leak isn't in your ARR calculation. It's in how deals get there. We find where the revenue is stuck.
Experience across
