Annualized Run Rate (ARR) projects how much recurring revenue a business can earn in a year. It is calculated using current recurring income and assumes that the same level of revenue continues consistently throughout the next twelve months. This figure helps subscription-based companies monitor growth and evaluate revenue trends over time.
Identify your Monthly Recurring Revenue (MRR) from active subscriptions. This should include only consistent, subscription-based income. Exclude any one-time charges, professional service fees, or variable usage billing.
Make sure the revenue is stable and recurring. For annual contracts, divide the total contract value by 12 to get the monthly equivalent.
Multiply your verified MRR by 12 to estimate your annualized recurring revenue.
ARR = MRR × 12
Validate the results. If your MRR changes frequently, consider using an average of the past 3–6 months for a more accurate projection.
ARR = Monthly Recurring Revenue (MRR) × 12
Note: Some companies calculate ARR based on actual contract values instead of monthly rates, especially in enterprise sales with annual billing cycles.
In the SaaS industry, ARR growth is a key indicator of business momentum. A year-over-year ARR growth rate of 40% or more is often seen as strong, especially for companies beyond the startup phase. Early-stage businesses may aim for even faster growth to attract investor interest and validate product-market fit.
While there is no fixed standard, healthy ARR growth typically reflects a combination of steady customer acquisition, strong retention, and potential revenue expansion from existing accounts.
The total recurring income generated from subscriptions each month, used to calculate ARR.
The projected revenue a business expects from a customer throughout the entire subscription relationship.
The rate at which customers cancel their subscriptions, directly impacting ARR growth or decline.
The average cost of acquiring a new customer, which influences how efficiently ARR can be scaled.
A metric that reflects revenue changes from existing customers, including expansions, contractions, and churn.
Want to track ARR growth like a pro? Start optimizing your recurring revenue metrics today with DiGGrowth’s advanced analytics platform. Drop us a line at info@diggrowth.com — we’ll get back to you promptly.
ARR allows companies to understand their long-term earning potential from subscriptions and serves as a foundation for strategic planning, investor reporting, and company valuation.
No. ARR includes only recurring subscription revenue. It does not account for one-time services, transactional sales, or variable charges.
MRR provides a short-term view of recurring revenue each month, while ARR stretches that snapshot across an entire year for long-term analysis.
ARR reflects the current run rate and assumes no changes in customer behavior. For more accurate projections, companies often monitor Net ARR or Net Revenue Retention separately.