What Is ARR?

ARR, or annual recurring revenue, is the yearly value of a company's recurring subscription revenue, usually monthly recurring revenue times twelve.

Category: Finance and metrics · Reviewed 11 November 2026 · 1 min read

How it works

The formula in words: ARR equals monthly recurring revenue multiplied by 12, or the annual value of all active subscriptions and contracts. Like MRR, it leaves out one-time fees and usage that does not repeat. Companies with annual contracts often quote ARR as their main size metric.

ARR is a snapshot of the current run rate, not revenue already earned. It does not guarantee next year's income, since customers can cancel or not renew.

Example

For example, a company has $50,000 in MRR. ARR is $50,000 times 12, or $600,000. If it also has two annual contracts worth $30,000 and $18,000 each, those are counted as $48,000 of ARR on top, assuming they are not already included in MRR. Total ARR would be $648,000.

Why founders care

ARR is a standard shorthand when talking with investors, buyers and partners about the size of a software or subscription business. It lets you compare periods and set targets. Be careful to define it the same way each time, since inflating it with pilots, one-time work or unsigned deals damages trust.

Common mistakes

• Annualizing a single strong month of usage-based revenue.
• Including one-time or non-renewing projects.
• Reporting ARR without saying how it is defined.

Frequently asked questions

Is ARR the same as annual revenue?

No. Annual revenue is what you actually earned in a year, including one-time sales. ARR is the annualized value of recurring subscriptions at a point in time.

When should a startup use ARR instead of MRR?

Many use MRR while small and monthly, and switch to ARR when customers sign annual contracts or when talking about overall scale. Either is fine if defined clearly.

Related terms

• MRR
• Churn Rate
• SaaS
• Series A Funding
• Lifetime Value

Go deeper

• Startup Metrics That Matter: MRR, Churn, CAC and LTV GuideStartup metrics explained in plain English: MRR, ARR, churn, CAC, LTV and more, with formulas in words, worked examples, and what investors ask for.
• Startup Funding Stages: Pre-Seed to Series C Explained GuideStartup funding stages explained in plain English: pre-seed, seed and Series A, B and C, what each round is for, what investors expect and how rounds are sized.

All 70 startup terms · More terms starting with A · Guides

General information, not legal, tax or financial advice. Reviewed 11 November 2026.