Annual Recurring Revenue (ARR)
The annualized value of recurring subscription revenue, calculated as MRR multiplied by twelve.
Annual Recurring Revenue (ARR) represents the yearly value of a company's recurring subscription revenue. It is calculated by multiplying Monthly Recurring Revenue (MRR) by 12, or by summing the annualized value of all active subscription contracts. ARR is the headline metric most SaaS companies use when communicating business scale and growth to investors, board members, and the market.
ARR is particularly meaningful for companies with primarily annual contracts, where MRR can be misleading due to lumpy billing cycles. An enterprise SaaS company signing $120,000/year deals adds $120,000 to ARR immediately, even though cash may arrive in a single invoice rather than monthly installments.
Key ARR milestones mark significant stages of SaaS company growth: $1M ARR often signals product-market fit, $10M ARR typically indicates a scalable go-to-market engine, and $100M ARR places a company in the elite category of large-scale SaaS businesses. Growth rates matter too — the "triple-triple-double-double-double" framework (tripling ARR twice, then doubling three times) is a common benchmark for venture-backed companies.
Social proof becomes increasingly important as companies scale ARR. Larger deal sizes mean longer sales cycles and more stakeholders involved in purchasing decisions. Customer testimonials, especially video case studies featuring recognizable brands, help accelerate these complex B2B sales cycles by building trust across the entire buying committee.
Frequently Asked Questions
When should a SaaS company use ARR versus MRR?
Use ARR when communicating overall business scale, during fundraising, and for annual strategic planning. Use MRR for month-to-month operational tracking, identifying trends, and measuring the impact of specific growth initiatives. Enterprise SaaS companies with annual contracts typically emphasize ARR, while self-serve products with monthly billing often focus on MRR. Most companies track both but lead with whichever better represents their business model.
Does ARR include usage-based revenue?
Pure usage-based revenue is generally excluded from ARR because it is not predictable or committed. However, many SaaS companies use hybrid models with a recurring base subscription plus variable usage fees. In these cases, the committed base subscription counts toward ARR, while the variable component is tracked separately. Some companies include a normalized average of usage revenue, but this approach should be clearly disclosed to avoid inflating the metric.
Related Articles
Build trust.
Drive revenue.
Join thousands of businesses using VideoTestimonials to build trust and accelerate growth.