Definition
Annual recurring revenue (ARR) is the value of a company's recurring subscription revenue over a year. It excludes one-off fees such as setup or services.
Formula
ARR = monthly recurring revenue × 12, or the sum of the annualised value of all active subscriptions.
Example
A company with $40,000 of monthly recurring revenue has an ARR of $480,000.
What it's for
ARR describes the size of a subscription business and is the usual basis for growth targets. It's a snapshot: it doesn't show how much revenue is at risk of churning or likely to expand. Pair it with net revenue retention.
Where it comes from
ARR is calculated from your billing system. Product analytics explains what drives it: which features paying accounts use, and which accounts are drifting.