one-line definition
ARR is a core operating metric that helps small teams make better product and growth decisions.
formula: ARR = MRR × 12
tl;dr
ARR is your MRR multiplied by 12. Use it for annual planning, fundraising conversations, and benchmarking against other SaaS businesses.
Simple definition
ARR (Annual Recurring Revenue) is the yearly value of your recurring subscription revenue. Take what you earn every month from active subscriptions and multiply by 12. It strips out one-time fees, services revenue, and variable usage so you get a clean picture of your subscription business on an annual basis.
ARR matters when you're comparing yourself to benchmarks (most SaaS benchmarks are stated in ARR), talking to investors, or planning your year. For week-to-week decisions, MRR is more useful because it reacts faster.
How to calculate it
ARR = MRR x 12
Say you have 80 customers on a $49/month plan and 15 customers on a $149/month plan:
MRR = (80 x $49) + (15 x $149) = $3,920 + $2,235 = $6,155
ARR = $6,155 x 12 = $73,860
If you have annual plans, count each one at its monthly equivalent. A customer paying $468/year is $39/month in MRR terms.
Example
You're an solo founder running a project management tool. In January your MRR is $4,200, giving you an ARR of $50,400. By June your MRR has grown to $5,800 -- ARR is now $69,600. You can tell people you're approaching $70K ARR, which is a meaningful milestone for bootstrapped SaaS. But watch the components: if half that growth came from one large customer, your ARR looks healthy but your concentration risk is high. Break it down by plan tier and customer segment before celebrating.
Related reading
Related terms
- MRR
- CAC
- LTV
FAQ
Why does ARR matter?+
It gives a fast signal about whether your product and distribution system is improving or regressing.