What is ARR (Annual Recurring Revenue)?
ARR is the total predictable subscription revenue a business earns in a year, normalized to an annual figure. It is the annualized view of MRR and the primary scale metric for SaaS business health.
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Definition
ARR (Annual Recurring Revenue) is the total predictable subscription revenue a business earns in a year, normalized to an annual figure. It's the annualized view of MRR — the headline growth number for subscription businesses, especially those on annual contracts. ARR counts only recurring revenue and excludes one-time fees like setup or professional services.
How to calculate ARR.
ARR = MRR × 12 or, for annual-contract businesses, the sum of the annualized recurring value of all active subscriptions.
Like MRR, ARR moves through the same five components over a year:
Net New ARR =
New + Expansion + Reactivation
− Contraction − Churned
Keep it clean: include only recurring charges. Rolling one-time implementation fees or variable usage overages into ARR overstates the number and breaks comparability with other SaaS businesses.
ARR example.
A business running $50,000 MRR:
Why ARR matters for attribution.
ARR is the number leadership and investors track — but you can't attribute a headline figure directly. Attribution happens at the revenue-event level (the MRR movements that roll up into ARR), so the two work together: you attribute each new and expansion event to the channel that earned it, then roll those into the ARR you report.
This matters most for annual-plan and enterprise SaaS, where a single paid conversion is a large annual commitment that lands in Stripe well after the click. Signal Sparrow syncs that revenue from Stripe and attributes it to the originating campaign — so your ARR growth ties back to the marketing that drove it, reconciled to the cent.
Questions, answered.
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ARR (Annual Recurring Revenue) is the total predictable subscription revenue a business earns in a year, normalized to an annual figure. It's the annualized view of MRR and excludes one-time fees.
For monthly billers, ARR = MRR × 12. For annual-contract businesses, sum the annualized recurring value of all active subscriptions. Include only recurring revenue.
They measure the same recurring revenue at different scales — MRR is the monthly view, ARR is the annual (MRR × 12). Monthly billers usually lead with MRR; annual-contract and enterprise SaaS usually lead with ARR.
No. ARR counts only recurring subscription revenue. One-time setup fees, professional services and variable usage overages should be excluded to keep the metric accurate and comparable.
Use MRR if you bill monthly and want a granular, month-to-month view; use ARR if you sell annual contracts or want the headline figure investors expect. Many teams track both.
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