Revenue Metrics

ARR: Annual Recurring Revenue

MRR multiplied by 12. The annualised value of the recurring revenue base.

Definition

Annual Recurring Revenue (ARR) is MRR multiplied by twelve. It annualises the recurring revenue base into a single headline number used for company sizing, investor conversations and most SaaS valuations.

Formula

ARR = MRR × 12

Worked example

A £50,000 MRR business has £600,000 ARR. When founders say 'we are a £10m ARR business', that is the annualised run-rate of recurring revenue, not last year's invoiced revenue.

Why it matters

ARR is the standard unit of measurement for subscription company scale. Most SaaS valuations are expressed as a multiple of ARR (typical range 3-10x for healthy growth-stage businesses). ARR also smooths the seasonality and cash-collection variability that monthly accounting introduces.

Common mistakes

  • Confusing ARR with billed revenue or recognised revenue (ARR is forward-looking run-rate)
  • Including non-recurring revenue (services, set-up, training) in ARR
  • Using ARR for businesses with non-subscription revenue models, where it misleads

Related terms

MRRNRRACVRule of 40

Read more in The Guide

Chapter: Metrics That Matter →

Sources & further reading

  • — Drawn from Evara's working definitions used on retained search and revenue advisory engagements (2024–2026).
  • — Reconciled against industry conventions in SaaStr, OpenView SaaS Benchmarks and Bessemer State of the Cloud.
  • — Reviewed by Rich Evans, Strategic Advisor at Evara and former operator/founder.

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