Glossary definition

What is annual recurring revenue (ARR)?

Annual recurring revenue (ARR) for SaaS companies measures existing subscription revenue coming in on an annual basis. It provides an overview of business performance year over year and helps you see trends, measure growth and forecast revenue. Additionally, it helps you keep churn in view and measure its impact. It is important to also watch monthly trends by measuring monthly recurring revenue (MRR).

You calculate ARR by simply adding the dollar amount of yearly subscription revenue to the dollar amount of expansion revenue, then subtracting the dollar amount of churn. Many cloud accounting solutions for SaaS companies include a SaaS metrics dashboard and automate the ARR calculation with real-time data.

If you are seeking series A funding, the ARR benchmark tends to range between $500,000 and $1,000,000.

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