What Is ARR?

Annual recurring revenue (ARR) is the annualized value of your subscription and contract revenue — the normalized measure of how much predictable income your business generates per year. It's the primary valuation metric for SaaS companies, the number investors ask for first, and the anchor for growth discussions. For subscription businesses ARR is simply MRR × 12; for enterprise businesses with annual contracts it's the sum of those contract values, normalized to a year.

How ARR Is Calculated

A critical note: ARR should only include recurring revenue — not one-off services, setup fees, or professional services, even if they repeat. Including non-recurring revenue inflates ARR and distorts the metrics built on top of it, including valuation multiples. When in doubt, be conservative.

What ARR Milestones Mean

• $1M ARR — often the first meaningful fundraising proof point; proves the model works
• $10M ARR — Series A territory; product-market fit confirmed, scaling begins
• $100M ARR — scale-stage; late-growth or pre-IPO conversations
• Triple-triple-double-double-double (T2D3) — the classic SaaS growth path from $1M to ~$100M ARR
• ARR multiples (valuation ÷ ARR) for SaaS range from 3–5× for modest growth to 15–20×+ for hyper-growth

How to Use This Calculator

Enter your MRR, any annual contract value, and optionally your previous year's ARR for a growth rate and your ARR target to see the gap and the MRR needed to close it. Use it to report to investors, set team targets, and model what different MRR growth rates do to your annual revenue picture.

Worked Example

A SaaS has $11,300 MRR and $50,000 in annual enterprise contracts. ARR = ($11,300 × 12) + $50,000 = $135,600 + $50,000 = $185,600. Previous year ARR was $80,000 — a 132% growth rate, strong early-stage performance. Target is $500,000 ARR, requiring $500,000 ÷ 12 = $41,667 MRR — a gap of $30,367/month to close. Now the team has a concrete monthly MRR target to work back from, rather than an abstract annual goal.

ARR vs MRR vs Revenue

MRR is monthly, ARR is annual — same underlying number at different time horizons. Both differ from revenue: GAAP revenue recognizes annually prepaid contracts over the year they're earned, while ARR counts the full annual value immediately. For investor and internal tracking purposes, ARR is more useful than reported revenue, which timing and accounting rules can distort.

Pair ARR with the MRR calculator for monthly detail, churn and LTV for health, and burn rate to see the ARR-to-burn ratio — a key efficiency metric investors increasingly watch.

The Path to ARR Milestones

ARR growth is rarely linear — it tends to come in phases driven by market expansion, product improvements, and distribution breakthroughs. Planning backward from an ARR target is how most SaaS teams build annual plans: set the ARR goal, divide by 12 for the implied MRR, calculate the gap from current MRR, and then figure out the combination of new customer acquisition and expansion needed to close it. The gap between current MRR and target MRR — measured against your average CAC and churn rate — tells you whether the plan is achievable with current unit economics or whether something fundamental needs to change first.

Frequently Asked Questions