What is annual recurring revenue (ARR)? Formula and examples

What is ARR?

Annual recurring revenue (ARR) is the yearly value of the subscription revenue a company has under contract at a given moment, assuming nothing changes. It is the headline metric for most B2B SaaS companies because it shows the size of the recurring business independently of billing timing.

ARR = monthly recurring revenue × 12

or, for a mix of contracts, the sum of each active contract's annualised recurring value. A 2-year contract worth $48,000 counts as $24,000 of ARR.

What counts and what does not

Customers who have cancelled leave ARR on the date the cancellation takes effect, not when the last invoice was sent.

ARR vs MRR vs revenue

• MRR is the same idea per month. ARR is MRR × 12.
• Revenue is what accounting recognises over a period, including one-off fees, spread according to accounting rules. ARR is a snapshot of committed recurring value on one date.
• Run rate sometimes means "this month's total revenue × 12". That includes one-off items, so it is not ARR.

A sample ARR bridge

An ARR bridge (or waterfall) explains how ARR moved over a year (sample numbers):

ARR grew 20%. From the same table: net revenue retention is (1,200,000 + 120,000 − 40,000 − 140,000) ÷ 1,200,000 = 95%, and gross revenue retention is (1,200,000 − 40,000 − 140,000) ÷ 1,200,000 = 85%. Growth here depends heavily on new sales; improving retention would make it sturdier.

Common mistakes

• Counting signed-but-not-started contracts as ARR (track them as contracted ARR separately).
• Annualising a single month of usage spikes.
• Keeping customers in ARR after they stopped paying.
• Mixing currencies at changing exchange rates without saying so.

Lining product data up with ARR

TapCub does not connect to your billing system, so it does not report ARR. To analyse which channels and behaviours drive it, send subscription events from your server (for example subscription_started, subscription_upgraded, subscription_cancelled) with the plan and amount as properties and the billing id as insert_id, so a retry does not create a second row. Then use funnels and retention to see which sources and features lead to paid plans, and the Rule of 40 to put growth and margin together.