ARR stands for Annual Recurring Revenue. It’s a metric commonly used by subscription-based businesses to measure the predictable and recurring revenue generated from subscription services over a year.
To calculate ARR, you would typically multiply the monthly recurring revenue (MRR) by 12, as ARR represents the expected revenue from subscriptions over the course of a year.
Here’s an example:
Let’s say a software as a service (SaaS) company offers a subscription plan for $100 per month. They have 100 customers subscribed to this plan.
MRR = $100 (monthly subscription fee) * 100 (number of customers) = $10,000
Now, to calculate ARR:
ARR = $10,000 (MRR) * 12 = $120,000
So, in this example, the company’s ARR is $120,000, indicating the total expected revenue from subscriptions over the next year based on current subscription levels.
