What is Annual Recurring Revenue (ARR)?

Annual recurring revenue (ARR) is a key performance metric for subscription-based businesses, representing the predictable and recurring revenue components over a year. It’s calculated by multiplying the monthly recurring revenue (MRR) by 12. ARR provides a clear picture of a company's revenue health and growth potential, excluding one-time fees and variable charges.

Tracking ARR helps businesses understand their long-term financial stability and forecast future revenue streams. It’s particularly important for investors and stakeholders who are interested in the sustainable income a company can generate. By focusing on ARR, companies can better strategize on customer retention, pricing models and market expansion to drive consistent growth.

To dive deeper into ARR, including its role in revenue predictability, financial forecasting, and investor confidence, as well as how to calculate ARR, read our guide: What is ARR and how do you calculate it?