Annual Recurring Revenue (ARR)
The annualized value of all active recurring subscription contracts, calculated as MRR multiplied by 12. The primary top-line metric for SaaS companies, used for valuation, benchmarking, and growth measurement.
ARR Is the Headline Number
When someone asks how big your SaaS company is, you answer in ARR. When a VC asks what your run rate is, they mean ARR. When you see headlines about a SaaS company crossing milestones, they are talking ARR. It is the universal language of SaaS scale.
The Calculation
ARR = MRR x 12
That is it. Take your current monthly recurring revenue and multiply by 12. Do not include one-time revenue. Do not include services. Do not include signed contracts that have not started yet (those are bookings, not ARR).
ARR Milestones That Matter
| Milestone | What It Signals |
|---|---|
| $1M ARR | Product-market fit validated |
| $5M ARR | Repeatable GTM motion |
| $10M ARR | Ready for growth-stage investment |
| $50M ARR | Approaching IPO readiness |
| $100M ARR | Category leader territory |
The Dirty Secret About ARR
ARR is a vanity metric if retention is bad. $10M ARR sounds great until you realize $3M of it will churn this year. Always pair ARR with NRR and churn metrics. A $7M ARR company with 130% NRR is more valuable than a $10M ARR company with 80% NRR, because the first company is compounding and the second is leaking.
Frequently Asked Questions
How is ARR different from annual revenue?
ARR is a forward-looking run-rate metric — current MRR times 12. Annual revenue is backward-looking GAAP revenue for the past 12 months. ARR captures your current trajectory. Revenue captures what already happened. A company growing quickly will have ARR higher than trailing revenue.
Should I use ARR or MRR?
Use both. MRR for monthly operations and reporting. ARR for board decks, fundraising, and valuation discussions. VCs think in ARR because valuations are expressed as multiples of ARR. Your finance team should maintain both views.
