ARR

TL;DR

Annual Recurring Revenue, the value of subscription contracts on a normalized 12-month basis, the headline SaaS revenue metric.

ARR captures the annualized value of all subscription contracts in force at a point in time. Monthly subscriptions are multiplied by 12; annual contracts are taken at face value. ARR excludes one-time fees, professional services, and any non-recurring revenue.

ARR is the standard SaaS metric for size and growth. Growth in ARR (new + expansion − churn − contraction) is the most-watched number in board meetings. Two companies at $10M ARR can have very different growth efficiency, retention, and capital intensity, so ARR alone never tells the full story.

Formula

ARR = MRR × 12

• MRR, Monthly Recurring Revenue at the snapshot date (ending or average, defined consistently)

ARR includes only recurring subscription revenue, exclude one-time setup fees, professional services, and usage overage if not contractually recurring.

Worked example

A SaaS reports December MRR $380k. ARR = $380k × 12 = $4.56M. A new $10k/mo customer signed mid-December lifts January MRR to $390k → ARR $4.68M.

Common pitfalls

• Including non-recurring revenue (services, setup fees) in ARR.
• Reporting bookings as ARR when contracts haven't started.
• Comparing ARR growth without checking net new ARR (new + expansion − churn).

When this shows up in a pitch deck

Headline number on the Traction slide for SaaS companies. Deckmetric weights ARR growth heavily in the Tiger Global and Series-stage frameworks.

See ARR in context

ARR shows up most often in these scoring rubrics and investor profiles, jump straight to who cares about it and how to pitch them.

In VC frameworks

• Tiger Global, pitch deck framework

For investor types

• Growth VC, Series A & B

Related terms

• MRR, Monthly Recurring Revenue, the normalized monthly value of all subscriptions in force, often used by month-to-month subscription businesses.
• Net Revenue Retention, The percentage of recurring revenue retained from a cohort after one year, including expansion, contraction, and churn.
• Burn Multiple, Net new ARR divided by net burn, the dollars of capital consumed per dollar of new ARR generated.
• Rule of 40, A SaaS health benchmark: revenue growth rate plus profit margin should sum to at least 40%.
• Magic Number, A SaaS sales-efficiency ratio: net new ARR divided by sales and marketing spend in the prior period.

Use this in your next pitch deck

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