Annual Recurring Revenue (ARR) is the total recurring revenue a company expects to generate from customers over one year. It is calculated by multiplying the number of customers by the average annual contract value. ARR is a key metric for SaaS companies, providing a predictable revenue stream and allowing companies to forecast their future growth.
- A SaaS company that sells a monthly subscription for $100/month would have an ARR of $1,200 for each customer.
- A company that sells a two-year subscription for $10,000 would have an ARR of $5,000 for each customer.
- A company that sells a one-time license for $10,000 would not have any ARR, as the revenue is not recurring.
Who is interested in using ARR?
ARR is a useful metric for a variety of stakeholders, including:
- SaaS company executives: ARR can help executives track the growth of their business and make informed decisions about how to invest in new products and services.
- Investors: Investors use ARR to assess the value of SaaS companies and make investment decisions.
- Sales and marketing teams: Sales and marketing teams can use ARR to set goals and measure the effectiveness of their campaigns.
- Customer support teams: Customer support teams can use ARR to identify and prioritize high-value customers.
Here are some additional benefits of using ARR:
- ARR can help companies to understand their customer base better and identify trends.
- ARR can be used to forecast revenue and make informed decisions about budgeting and planning.
- ARR can be used to benchmark a company’s performance against other companies in the same industry.
Overall, ARR is a valuable metric for SaaS companies of all sizes. It can track growth, make informed decisions, and benchmark performance.