How do you calculate ARR?

For monthly subscriptions: ARR = MRR × 12. For annual contracts: ARR = Annual Contract Value. For mixed billing: ARR = (Monthly MRR × 12) + Annual Contract ARR. Example: 100 customers at $50/month = $5,000 MRR = $60,000 ARR. Always exclude one-time revenue and use committed recurring amounts only.

What is the difference between ARR and MRR?

MRR (Monthly Recurring Revenue) is the monthly normalized value; ARR is the annual equivalent (MRR × 12). Use MRR for month-over-month operational tracking and short-term analysis. Use ARR for annual comparisons, investor discussions, and valuation calculations. They measure the same underlying metric at different time scales.

What is a good ARR growth rate?

Good ARR growth depends on stage and ARR level. Early stage (<$1M ARR): 15-20% monthly, 3-5x annual. Growth stage ($1-10M ARR): 100-200% annual. Scale stage ($10-50M ARR): 50-100% annual. At-scale ($50M+ ARR): 30-50% annual. The T2D3 framework targets tripling twice, then doubling three times to reach $100M+ ARR.

What is ARR run rate?

ARR run rate extrapolates current revenue to annual terms. If you earned $100K in January, your run rate ARR is $1.2M. Run rate is useful for early-stage companies or after significant changes, but can be misleading if revenue is lumpy. Use actual trailing ARR once you have 12 months of data.

Net New ARR = New ARR + Expansion ARR - Contraction ARR - Churned ARR. It represents the total change in ARR over a period. Positive net new ARR means your recurring revenue is growing; negative means you're shrinking. This is the key number for understanding ARR trajectory.

What ARR multiple should I expect?

ARR multiples vary by growth rate, market conditions, and company quality. 2024-2025 ranges: 80% growth: 10-20x+ ARR. Premium companies (high NRR, strong margins) command higher multiples. Private companies typically trade at 20-40% discount to public comps.

What is ARR per employee?

ARR per employee measures efficiency: ARR ÷ Total Employees. Benchmarks: Early stage: $50-100K, Growth stage: $100-150K, Scale stage: $150-200K, At-scale: $200-300K+. Higher is better—it indicates you're generating more revenue per person. Top-performing companies exceed $300K ARR per employee.

How is ARR different from revenue?

ARR specifically measures recurring subscription revenue, normalized annually. Total revenue includes ARR plus one-time fees (setup, implementation), professional services, usage overages, and other non-recurring sources. For SaaS companies, ARR is typically 80-95% of total revenue. Use ARR for SaaS metrics; total revenue for GAAP reporting.

What is committed ARR vs booked ARR?

Committed ARR is revenue you're contractually entitled to receive from active subscriptions. Booked ARR includes new contracts signed but not yet started. Committed is more conservative and typically used for investor reporting. Booked ARR can be higher when you have future-dated contracts or long implementation periods.

How do multi-year contracts affect ARR?

For ARR purposes, use the annual value, not total contract value. A 3-year, $300K contract = $100K ARR, not $300K. This normalizes comparison across different contract lengths. Track TCV (Total Contract Value) separately for bookings analysis. Include any contractual price increases in future year ARR calculations.

Should usage-based revenue be included in ARR?

Include committed minimums in ARR. Usage overages above minimums are typically excluded as they're not truly 'recurring' in a predictable sense. Some companies track 'effective ARR' including expected usage based on historical patterns. Be consistent and transparent about your methodology with investors.

How do discounts affect ARR calculation?

Calculate ARR at the actual amount customers pay, not list price. A $10K/year contract with 20% discount = $8K ARR. Track discounting separately to monitor pricing discipline. Some companies track 'list ARR' to measure discount depth, but investor-facing ARR should reflect real committed revenue.

What is the Rule of 40 for ARR?

Rule of 40: ARR Growth Rate % + Profit Margin % ≥ 40%. Example: 50% ARR growth + (-10%) profit margin = 40% (passing). This balances growth and efficiency. Companies above 40% can trade growth for profit or vice versa. At-scale companies often target 40%+ as a sustainability benchmark.

When does ARR become the primary metric?

ARR becomes primary once you have meaningful recurring revenue (typically $100K+ ARR). Before that, focus on customer count, engagement, and product-market fit signals. Once ARR is substantial, it becomes the north star for planning, fundraising, and valuation. MRR remains important for monthly operational tracking.

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ARR Calculator

Calculate Annual Recurring Revenue (ARR), growth rates, run rate projections, and company valuations. Includes benchmarks by stage, ARR per employee analysis, and investor-grade metrics for SaaS founders and operators.

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Monthly Recurring Revenue (MRR)

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How to Calculate Annual Recurring Revenue (ARR)

Annual Recurring Revenue (ARR) is the single most important metric for SaaS companies. It represents the annualized value of your recurring subscription revenue, providing a normalized view of business scale and growth. Whether you're a seed-stage startup tracking your first $1M ARR milestone or a growth-stage company optimizing for $100M+ ARR, understanding your ARR dynamics is essential for fundraising, valuation, and strategic planning.

What Is ARR?

ARR (Annual Recurring Revenue) is the normalized annual value of your recurring subscription revenue. Unlike one-time sales or variable revenue, ARR represents predictable, committed revenue from active subscriptions. For monthly billing, ARR = MRR × 12. For annual contracts, ARR equals the contract value. Key ARR components include: New ARR (from new customers), Expansion ARR (upgrades and add-ons), Contraction ARR (downgrades), and Churned ARR (cancellations). The net change in these components determines your ARR growth trajectory.

ARR Formulas

ARR = MRR × 12
Net New ARR = New ARR + Expansion ARR - Contraction ARR - Churned ARR
ARR Growth Rate = (Current ARR - Previous ARR) / Previous ARR × 100

Why Calculate ARR?

Investor Communication

ARR is the universal SaaS metric for investor discussions. VCs benchmark companies by ARR milestones ($1M, $10M, $100M) and use ARR multiples for valuation.

Valuation Benchmark

SaaS valuations are typically expressed as ARR multiples. Understanding your ARR helps estimate company value and set fundraising expectations.

Milestone Tracking

Key SaaS milestones are ARR-based: $1M (product-market fit), $10M (scaling), $100M (unicorn territory). ARR tracking shows progress toward these goals.

Growth Rate Analysis

Year-over-year ARR growth rate is a critical efficiency metric. The T2D3 framework (triple, triple, double, double, double) uses ARR growth targets.

Resource Planning

ARR per employee benchmarks help optimize team size. Most SaaS companies target $100K-$200K ARR per employee at scale.

Board Reporting

Boards expect regular ARR updates with component breakdowns. Clean ARR reporting demonstrates operational rigor and financial maturity.

How to Use This ARR Calculator

When to Calculate ARR

Monthly Financial Close

Calculate ARR monthly to track trends, compare to targets, and identify growth or churn issues early.

Board Meetings & Investor Updates

Present ARR with component breakdown, growth rates, and stage benchmarks to demonstrate business trajectory.

Fundraising Preparation

Understand your ARR multiple expectations by stage and prepare defensible ARR calculations for due diligence.

Hiring Planning

Use ARR per employee benchmarks to determine optimal team size and identify when to hire or optimize.

Pricing Strategy

Model how pricing changes impact ARR before implementation. Calculate expansion ARR potential from upsells.

Exit Planning

Understand valuation ranges based on ARR multiples to set realistic expectations for M&A or IPO timing.

Frequently Asked Questions

ARR (Annual Recurring Revenue) is the annualized value of recurring subscription revenue. It's calculated as MRR × 12 or the sum of all annual contract values. ARR normalizes revenue to a yearly basis, making it easier to compare companies, set goals, and calculate valuations. It excludes one-time fees, professional services, and variable revenue.

How to Calculate Annual Recurring Revenue (ARR)

What Is ARR?

ARR Formulas

ARR = MRR × 12
Net New ARR = New ARR + Expansion ARR - Contraction ARR - Churned ARR
ARR Growth Rate = (Current ARR - Previous ARR) / Previous ARR × 100