Annual Recurring Revenue

Annual Recurring Revenue is the value of recurring subscription revenue normalized to a one-year period. It's the primary metric B2B SaaS companies use to measure predictable, recurring revenue and assess business health and growth trajectory. ARR represents the annualized value of active subscriptions at a specific point in time, excluding one-time fees, professional services, or usage-based charges. This metric provides clarity on sustainable revenue independent of contract timing or billing frequency. ARR components include New ARR from new customers, Expansion ARR from upsells and cross-sells, Churned ARR from lost customers, Contraction ARR from downgrades, and Net New ARR. Product managers track ARR to understand which features drive expansion, identify churn risks, and prioritize roadmap investments. ARR growth rate indicates market demand and product-market fit. Related metrics include ARR per customer, ARR by segment, and the ARR multiple. Unlike monthly recurring revenue, ARR smooths seasonal fluctuations and aligns with annual planning cycles. For public and late-stage SaaS companies, ARR is the foundation for financial modeling, forecasting, and valuation. Strong ARR growth with healthy retention demonstrates product value and sustainable business models.