ARR stands for Annual Recurring Revenue. It is a measure of the amount of revenue that a company can expect to receive on a yearly basis and is typically used as a metric by subscription-based businesses.
How do you calculate ARR?
ARR is calculated by taking the total monthly recurring revenue for a given year and multiplying it by the number of months in that year. For example, if a company has $100,000 in monthly recurring revenue, its ARR would be $1.2 million.
The simple formula would be: Total monthly recurring revenue x 12 (months) = Annual recurring revenue.
Some benefits of tracking ARR include:
- It provides a clear picture of a company's growth
- It can be used to predict future revenue
- It can help identify upselling and cross-selling opportunities