What Is Annual Recurring Revenue (ARR)?
Annual recurring revenue (ARR) is the value of a subscription business's recurring revenue normalized to a one-year period. It counts only predictable, contracted subscription revenue — excluding one-off fees and usage overages — and is the headline metric SaaS companies use to measure size and growth.
Key takeaways
- ARR = MRR × 12; it includes only recurring subscription revenue.
- Exclude one-time fees, professional services and non-contracted usage.
- Track ARR movements — new, expansion, contraction and churn — not just the total.
How to calculate ARR
ARR is a snapshot of run-rate recurring revenue, not a sum of cash collected. A customer on a €2,000/month plan contributes €24,000 of ARR whether they pay monthly or annually up front.
ARR = MRR × 12
Or sum the annualized value of every active recurring contract.
What counts as ARR
| Include | Exclude |
|---|---|
| Subscription / license fees | One-time setup or onboarding fees |
| Recurring add-ons and seats | Professional services & consulting |
| Contracted recurring usage | Variable overages not contracted |
The ARR waterfall
Mature teams don't just report ARR — they decompose its change into New, Expansion, Contraction and Churned ARR. That waterfall shows whether growth is coming from new logos or from the existing base, which is what investors and boards actually want to see.
Frequently asked questions
What's the difference between ARR and MRR?
They measure the same recurring revenue at different cadences. MRR is the monthly figure; ARR is that normalized to a year (ARR = MRR × 12). ARR is favored by annual-contract businesses, MRR by month-to-month ones.
Does ARR include one-time fees?
No. ARR is strictly recurring. Setup fees, services and other non-recurring charges are excluded — including them overstates the durable revenue base.
Is ARR the same as revenue?
No. ARR is a forward-looking run rate of recurring revenue. GAAP revenue is recognized as it's earned and includes non-recurring items, so the two rarely match exactly.
Related service: Build trustworthy revenue reporting in HubSpot