Annual Recurring Revenue (ARR)

Definition

ARR is a subscription or contract-based metric that calculates the yearly revenue value for the life of the contract. Typically used to measure the health of subscription-based companies since this is the amount of revenue that a company expects to repeat annually.

Example

For example, if a customer enters into a two-year contract with Vareto for $12,000, the ARR will be $6,000 per year. ARR is predictable revenue that can be expected every year.

Why it matters

ARR is a forward-looking metric that is used very frequently by investors to understand how much recurring revenue a company expects to bring in during the coming year based on existing contracted customers. For B2B SaaS companies, ARR is one of the most important metrics tracked by management and investors.

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