Annual recurring revenue (ARR) is the total predictable and recurring revenue a business expects to earn annually from active subscriptions. It is a key performance indicator used to measure growth, forecast revenue, and assess customer value over time.

ARR includes:

• Subscription fees from active contracts
• Recurring usage-based charges
• Recurring add-ons or upgrades

ARR excludes:

• One-time setup fees
• Professional services
• Non-recurring or transactional revenue

How to calculate ARR?

If customers are on annual contracts:

ARR = Total value of all active annual subscriptions

If customers are billed monthly:

ARR = Monthly recurring revenue (MRR) × 12

Example:

• Customer A pays $100/month → ARR = $1,200
• Customer B pays $2,400/year → ARR = $2,400
• Customer C pays $300/month → ARR = $3,600

Total ARR = Customer A + B + C = $7,200