[GTM glossary](/glossary.md) Annual recurring revenue GTM Strategy & SaaS Metrics # Annual recurring revenue (ARR) Also known as: ARR In short Annual recurring revenue (ARR) is the annualized value of the recurring subscription revenue from your active customers. It is a snapshot of the revenue base you would have over the next twelve months if nothing changed. ARR is the headline metric for subscription businesses. It excludes one-time fees and usage that is not contractually recurring, and it is not the same as revenue recognized in accounting. ## How to calculate ARR * **Contract-based:** Add up the annualized recurring value of every active contract. * **From MRR:** Multiply monthly recurring revenue by 12. * **Example:** Say a company has 100 customers paying 500 per month on subscription. MRR is 50,000 and ARR is 600,000. --- ## What moves ARR ARR changes through four movements, which teams usually track separately. * **New:** ARR from newly won customers. * **Expansion:** Upsells, cross-sells, and seat growth in existing customers. * **Contraction:** Downgrades that reduce a customer's spend. * **Churn:** ARR lost when customers cancel. --- ## What to include and exclude * **Include:** Subscription fees, committed platform fees, and recurring support plans. * **Exclude:** One-time setup fees, professional services, and non-recurring usage. * **Edge cases:** Multi-year discounts, free months, and pilots need a written rule, so finance and sales report the same number. --- ## How GTM teams use ARR ### Targets and quotas Sales teams are often measured on net new ARR, not total revenue. ### Efficiency Dividing spend by new ARR shows whether growth is affordable, as in the burn multiple or the CAC payback period. ### Forecasting Starting ARR plus expected new, expansion, contraction, and churn gives a simple forecast. --- ## Common mistakes * **Counting signed but not live contracts:** Decide whether ARR starts at signature or go-live, and stay consistent. * **Including one-time revenue:** It inflates the base and makes growth look better than it is. * **Only tracking the total:** The total hides whether growth comes from new customers or from retention. --- ## Annual recurring revenue FAQs **What is annual recurring revenue (ARR)?** Annual recurring revenue is the yearly value of the recurring subscription revenue from active customers. It shows the revenue base a subscription business would earn over twelve months if no customers joined, left, or changed plans. **How do you calculate ARR?** Add up the annualized recurring value of all active contracts, or multiply monthly recurring revenue by 12. For example, 50,000 in MRR equals 600,000 in ARR. Leave out one-time fees such as setup and services. **What is the difference between ARR and MRR?** MRR is monthly recurring revenue and ARR is the same figure annualized. ARR equals MRR times 12. Companies with annual contracts tend to report ARR, while those with monthly plans often track MRR. **What is the difference between ARR and revenue?** Revenue is what a company recognizes under accounting rules in a period. ARR is a forward-looking operating metric showing annualized recurring contracts. A signed deal can add to ARR long before it shows up fully as recognized revenue. **Does ARR include one-time fees?** No. ARR covers only recurring revenue, such as subscriptions and committed platform fees. Setup fees, professional services, and one-off purchases are excluded so the metric reflects predictable, repeating income. Share term --- ## More related phrases * [Gross revenue retention](/glossary/gross-revenue-retention.md) * [Committed monthly recurring revenue (CMRR)](/glossary/committed-monthly-recurring-revenue.md) * [Annual run rate](/glossary/annual-run-rate.md) ## Similar phrases * [Monthly recurring revenue (MRR)](/glossary/monthly-recurring-revenue.md) Monthly recurring revenue (MRR) is the predictable subscription revenue a business expects to earn each month, normalized across billing periods. * [Net new ARR](/glossary/net-new-arr.md) Net new ARR is the change in annual recurring revenue over a period: new customer and expansion ARR, minus churned and contracted ARR. * [Annual contract value (ACV)](/glossary/annual-contract-value.md) Annual contract value (ACV) is the average yearly revenue from a customer contract, used to compare deal sizes across contracts of different lengths. * [Expansion ARR](/glossary/expansion-arr.md) Expansion ARR is the additional annual recurring revenue gained from existing customers through upsells, cross-sells, and added seats in a given period. * [Net revenue retention (NRR)](/glossary/net-revenue-retention.md) Net revenue retention (NRR) measures how recurring revenue from existing customers changes over time, including upsell, downgrades, and churn.