What is Annual Recurring Revenue (ARR)?

Annual Recurring Revenue (ARR) is the total predictable revenue your subscription business generates in a year. It counts only the recurring portion — the dependable money from ongoing contracts — and ignores one-time fees like setup or consulting.

ARR is the headline metric for subscription and SaaS companies. Because the revenue repeats, it's a far better measure of company health than a single lump of sales, and it's the number investors look at first.

How ARR works

The simplest way to get ARR is to multiply Monthly Recurring Revenue (MRR) by twelve. If your MRR is $50,000, your ARR is $600,000. For annual contracts, you can also sum the yearly value of every active subscription.

• ARR = MRR × 12 for monthly subscriptions.
• Include only recurring revenue — exclude one-off setup, training, or services fees.
• Track new, expansion, and churned ARR separately to see what's really driving growth.

Why ARR matters for validation

ARR shows whether a business has a durable, repeating revenue engine rather than a series of one-time sales. Investors value subscription companies largely as a multiple of ARR, so growing it is the clearest path to a higher valuation. For a founder validating an idea, recurring revenue that customers renew is strong proof of lasting demand.