ARR (Annual Recurring Revenue)

ARR (Annual Recurring Revenue), or annual recurring revenue, is a financial metric used by companies that operate on a subscription model. It represents the total amount of recurring revenue a company can expect to generate over a year. ARR is a key indicator for measuring financial stability and company growth, especially in SaaS sectors.

How does ARR work?

ARR is calculated by multiplying monthly recurring revenue (MRR) by 12. For example, if a company generates €10,000 in MRR, its ARR will be €120,000. It only includes recurring revenue from subscriptions and excludes one-time or exceptional revenue.

Concrete example

Imagine a SaaS company offering a project management solution for €100 per month with 500 active customers. The MRR would be €50,000, and the ARR would be €600,000 (50,000 x 12 months). This means that over a year, the company can expect to generate €600,000 in recurring revenue.

Why is ARR important?

ARR is essential for measuring the long-term financial health of a subscription-based company. It helps forecast future revenue, assess profitability, and measure year-over-year growth. An increasing ARR is a positive sign of the company's strength and viability.

Looking to increase your ARR?

If you want to boost your ARR or better understand how to manage your recurring revenue, contact us via the contact form on our website. We will be happy to help you grow your business.