Glossary
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.
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%.
How to count ARR
- Annualize contracts. A €72,000 three-year contract adds €24,000 of ARR, not €72,000.
- 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.
- Leave out one-time revenue. Count only what you can reasonably expect to recur.
- 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. How much cash each new euro of ARR costs shows in the burn multiple on the burn rate page, and an investor update is a natural place for the roll-forward above.
FAQ
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.
Keep reading
Investor and fundraising
- TemplateBusiness plan
A business plan presentation template with 10 slides: summary, problem, customers, model, revenue, profit and loss, use of funds, milestones and the ask.
- GuideElevator pitch examples
Eight fictional elevator pitch examples for founders, consultants, freelancers, job seekers and internal projects, each as a 30 and a 60-second version.
- Free toolPitch deck checklist
Free pitch deck checklist for pre-seed, seed and Series A: tick off what each slide must answer, see your progress and turn the gaps into a brief for your deck.
- GlossaryTAM, SAM, SOM
TAM, SAM and SOM size a market in three steps: everyone who could buy, the part you can serve and the share you can win. Definitions and a worked example.
- SolutionAI presentations for startups
How startups use AI for a pitch deck, investor updates, a business plan and board updates, with Excel financial plans built on formulas.
- Free toolElevator pitch builder
Free elevator pitch generator: fill in six parts and get a 30, 60 and 90 second version with word count, speaking time and a copy button. Runs in your browser.
Where to go next
- ConvertExcel to PowerPoint
Attach a workbook and get a deck with editable tables and charts drawn by the AI.
- ProductAI report generator
Tell the AI what the report must say, approve a page plan and get an A4 report or proposal.
Less theory, more finished slides
Describe the deck you need. The AI plans, writes and designs it, and hands you an editable PowerPoint.
Build your first deck freeFree plan, no card needed