Definition
ARR is the yearly value of the recurring revenue you have under contract right now. It is a run rate, not a forecast and not GAAP revenue. One-time fees, services and usage above committed minimums are usually excluded.
Formula
ARRARR = MRR × 12
Example
Demo Co ends October with $255.1K of MRR, so its ARR is $3.06M.
Benchmarks
ARR growth targets depend on stage and capital. Venture-backed companies under $10M ARR often aim to double or triple ARR year over year; profitable companies grow slower by design.
Common mistakes
- Including one-time implementation or services fees.
- Annualizing a single big usage month.
- Counting signed contracts that have not started (that is bookings, not ARR).
- Letting the CRM’s ARR field drift from what billing actually charges.
Examples use Demo Co, a fictional $3M ARR SaaS company, or a generic company where noted. Benchmarks are common reference points, not targets for every business.