Example: If your monthly recurring revenue is $25,000, your ARR is $300,000.
Why Annual Recurring Revenue (ARR) matters
ARR gives a single, stable figure for the size of your recurring revenue base. It is the number most commonly used to describe the scale of a subscription company and to set annual targets.
It only counts recurring revenue. One-time payments such as setup fees or consulting are left out, so ARR shows the predictable part of your income rather than everything you billed.
How to read it
There is no universal good figure. Look at the growth rate of ARR over time and at what drives it: new customers, upgrades, downgrades and cancellations.
Be careful about what you include. Multiplying a single strong month by 12 can overstate the real base, especially if it includes short-term or seasonal customers.
How to improve it
- Grow new subscriptions while keeping a close eye on churn.
- Expand existing accounts with upgrades, add-ons and extra seats.
- Move monthly customers onto annual plans where it makes sense.
- Reduce cancellations, since lost recurring revenue lowers ARR immediately.
Common mistakes
- Including one-time fees or usage spikes that do not repeat.
- Annualizing a single unusually strong month.
- Counting trials or unpaid invoices as recurring revenue.
- Using ARR for a business with mostly monthly, short-lived customers where MRR is the better measure.
“What is my ARR today, and how has it changed over the last four quarters?”
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