# What is ARR (annual recurring revenue)? > **ARR:** ARR (annual recurring revenue) is the yearly value of the subscription revenue a company has under contract at a given moment, calculated as monthly recurring revenue times twelve. - Source: https://ai-presentations.com/glossary/arr/ - Updated: 21 October 2026 - Language: English - German version: https://ai-presentations.com/de/glossar/arr/ Also called: annual recurring revenue, annualized recurring revenue **ARR** (annual recurring revenue) is the yearly value of the recurring revenue a company has under contract on a given day. For subscriptions it is monthly recurring revenue (MRR) times twelve, or the sum of the yearly value of all active contracts. It is a snapshot of the current run rate, not the revenue earned over the past twelve months. ARR counts subscription fees and other revenue that recurs by contract. It leaves out one-time fees such as setup, training, consulting and hardware. ## A worked example A software company has 46 customers, each paying on average €23,700 a year (€1,975 a month). Its ARR is 46 × €23,700 = €1,090,200, or €1.09m. Over twelve months the ARR moved like this: | | ARR | | --------------------------------- | -------------- | | Opening ARR (11 customers) | €260,700 | | New customers (35) | + €756,500 | | Expansion from existing customers | + €73,000 | | Contraction and churn | €0 | | **Closing ARR (46 customers)** | **€1,090,200** | Closing ARR is 4.2 times opening ARR. Net new ARR is €756,500 + €73,000 = €829,500. Net revenue retention, which looks only at the customers who were there a year ago, is (€260,700 + €73,000) ÷ €260,700 = 128%. *ARR over five quarters. The title states the result, the takeaway line carries the supporting numbers. Example with invented numbers.* 5. ARR grew 4.2x in twelve months to 46 customers ## How to count ARR 1. **Annualize contracts.** A €72,000 three-year contract adds €24,000 of ARR, not €72,000. 2. **Decide when a customer enters ARR,** at signature or at go-live, write the rule down and keep it. Signed contracts that have not started are often shown separately as contracted ARR. 3. **Leave out one-time revenue.** Count only what you can reasonably expect to recur. 4. **Show ARR over time,** with the date of each value, and call it ARR, never "revenue". ## Typical mistakes - **Calling ARR revenue.** ARR is a management metric. The income statement shows recognized revenue. - **Counting multi-year contracts at full value.** - **Annualizing a month that will not repeat,** such as a project-heavy month times twelve. - **Counting customers who have given notice** as if they will stay. - **Changing the counting rule between decks,** so growth looks better than it is. ARR divided by the number of customers gives the average contract value, the starting point of [unit economics](https://ai-presentations.com/glossary/unit-economics/). How much cash each new euro of ARR costs shows in the burn multiple on the [burn rate](https://ai-presentations.com/glossary/burn-rate/) page, and an [investor update](https://ai-presentations.com/templates/investor-update/) is a natural place for the roll-forward above. ## Frequently asked questions ### How do you calculate ARR? Multiply monthly recurring revenue by twelve, or add up the yearly value of every active subscription. For 46 customers paying €23,700 a year each, ARR is 46 × €23,700 = €1,090,200. ### What is the difference between ARR and MRR? MRR is recurring revenue per month. ARR is the same revenue annualized, so ARR equals MRR times twelve. Companies with monthly contracts often report MRR, and companies with annual contracts report ARR. ### Is ARR the same as annual revenue? No. Annual revenue is what the accounts recognized over a year, including one-time fees. ARR is the annualized value of recurring contracts on one day, so it describes the current run rate. ### What counts as ARR? Subscription fees and other revenue that recurs by contract, annualized. Setup fees, training, consulting and hardware do not count. Count a multi-year deal at its yearly value, and write down whether a customer counts from signature or from go-live. ### How do you calculate net new ARR? Add the ARR from new customers and the expansion from existing customers, then subtract contraction and churn. In the example, €756,500 + €73,000 − €0 = €829,500. ## Related pages - [Unit economics](https://ai-presentations.com/glossary/unit-economics/): Unit economics show whether one customer earns more than it costs to win and serve. Learn the core metrics, the formulas and a worked example you can copy. - [Burn rate](https://ai-presentations.com/glossary/burn-rate/): Burn rate is how much cash a company spends per month. Learn gross vs. net burn, the formula, a worked example and how burn relates to runway and growth. - [CAC](https://ai-presentations.com/glossary/cac/): CAC is what it costs on average to win one new customer: sales and marketing spend divided by new customers. Learn the formula, what to include and an example. - [Runway](https://ai-presentations.com/glossary/runway/): Runway is the number of months a company can keep operating before its cash runs out. See the formula, a worked example and how to show runway to investors. - [Pitch deck](https://ai-presentations.com/templates/pitch-deck/): Ten slides for a seed round: problem, solution, market, traction, unit economics, competition, team and the ask. A pitch deck template with a worked example. - [Investor update](https://ai-presentations.com/templates/investor-update/): An investor update template with 9 slides: summary, metrics, ARR bridge, plan against actual, lessons, cash and runway, next-quarter plan and asks. --- ai-presentations.com is published by Slaide (https://www.slaide.de), a sole proprietorship run by Nathalie Scholl in Heilbronn, Germany. [How this site is written, checked and corrected](https://ai-presentations.com/editorial-policy/).