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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