Annual recurring revenue (ARR) measures predictable, recurring revenue from subscription-based models. Product managers use ARR to evaluate pricing, retention rates, forecast revenue growth, and inform product decisions.
Annual Recurring Revenue (ARR) is a metric used by businesses to measure the amount of revenue they can expect to receive from their customers on an annual basis. ARR is calculated by multiplying the monthly recurring revenue (MRR) by 12, which gives the total revenue that a business can expect to receive from its customers in a year.
ARR is an important metric for businesses because it provides a clear picture of their revenue stream. By calculating ARR, businesses can determine the amount of revenue they can expect to receive in the future, which can help them make important decisions about their business strategy.
ARR is particularly important for businesses that rely on subscription-based revenue models, such as software-as-a-service (SaaS) companies. These businesses need to have a clear understanding of their revenue stream in order to make decisions about product development, marketing, and sales.
ARR is calculated by multiplying the monthly recurring revenue (MRR) by 12. MRR is the amount of revenue that a business can expect to receive from its customers on a monthly basis. To calculate MRR, businesses need to take into account the number of customers they have, the price of their product or service, and any discounts or promotions that they offer.
For example, if a SaaS company has 1,000 customers who pay $50 per month for their product, their MRR would be $50,000. To calculate their ARR, they would multiply their MRR by 12, which would give them an ARR of $600,000.
There are several benefits to using ARR as a metric for businesses:
Overall, ARR is an important metric for businesses that rely on subscription-based revenue models. By calculating their ARR, businesses can gain a clear understanding of their revenue stream, which can help them make important decisions about their business strategy.