Annual Recurring Revenue (ARR)

The yearly value of subscription or contracted revenue that is expected to repeat.

Example

4,000 customers paying 3,600 a year gives 14,400,000 of ARR.

Important

ARR counts revenue expected to repeat, so it overstates reality when churn is high or discounts are temporary.

Related terms

• Cohort Retention — The share of customers from a given signup period who are still active or paying after a set time.
• Churn Rate — The share of customers or revenue lost over a period.

Lessons that explain it

• Not every number called revenue is the same kind of money — Financial diligence starts by separating recurring revenue from one-off fees, bookings from recognised revenue, and invoiced amounts from cash collected. (11 min)
• Ask for a few numbers on a steady rhythm, not everything whenever you remember — Good monitoring of private positions rests on a consistent update, at a cadence matched to stage and position size, covering the handful of numbers that actually signal health. (10 min)
• SaaS lives on retention; marketplaces live on liquidity and take rate — Software businesses are judged on recurring revenue, expansion and margins. Marketplaces are judged on whether buyers and sellers reliably find each other, and how much of each transaction the platform keeps. (12 min)
• One percent of a huge number is not a market size — Top-down market sizing starts with a large industry figure and assumes a share. Bottom-up sizing counts real customers and prices. Only the second tells you anything reliable. (12 min)
• Retention and unit economics say more than the growth chart — Growth can be bought. Retention shows whether customers get lasting value, and unit economics show whether each customer is worth what it costs to win. (13 min)
• A revenue multiple for a young company needs three adjustments — Once a startup has revenue, it is often valued as a multiple of it. Borrowing public or late-stage multiples requires adjusting for growth, size and illiquidity before the number means anything. (11 min)

All 578 terms in the Investing glossary