ARR (Annual Recurring Revenue) is the annualized snapshot of a subscription business's recurring revenue at a point in time, summing annualized active subscriptions. A $5,000/year customer contributes $5,000 to ARR; a $500/month customer contributes $6,000. ARR is the primary growth and valuation metric for SaaS and subscription companies because it provides a forward-looking view of revenue assuming no churn or expansion, unlike GAAP revenue which is backward-looking. The metric is so important that SaaS valuations are typically expressed as multiples of ARR (e.g., "5x ARR" or "20x ARR" depending on growth rate and market conditions). It is the metric reported most prominently in investor materials and board updates.
The ARR calculatio...