ARR stands for Annual Recurring Revenue. It is the total predictable recurring revenue a subscription or SaaS business would generate in a year if nothing changed: no new customers, no churn, no expansions. ARR is calculated by taking MRR (Monthly Recurring Revenue) and multiplying it by 12.
ARR is the most widely used metric for comparing SaaS companies, reporting to investors, and setting annual targets. When you hear a startup described as a "$5M ARR company" or a "$50M ARR SaaS," they are referring to their Annual Recurring Revenue.
ARR formula: how to calculate ARR
ARR = MRR x 12. If your MRR is INR 25 lakh, your ARR is INR 3 crore. Alternatively, for companies where most customers are on annual contracts: ARR = Sum of all annual contract values from active subscriptions. Note: ARR excludes one-time fees, professional services, and non-recurring revenue.
ARR vs MRR: when to use which
- Use MRR for: monthly operational tracking, understanding growth trajectory, tracking churn and expansion in real time, month-to-month financial forecasting.
- Use ARR for: annual planning and budgeting, investor updates and fundraising, benchmarking against other SaaS companies, calculating company valuation multiples.
- Which metric is standard depends on your billing model: companies with mostly monthly subscriptions track MRR primarily; companies with annual contract customers often report ARR.
ARR growth rate: the key metric investors watch
For early-stage B2B SaaS companies, investors typically look for ARR growth of 100%+ year-over-year (often called "doubling" or "2x ARR"). The Rule of 40 is a benchmark for growth-stage and mature SaaS: ARR growth rate + profit margin should equal at least 40. A company growing ARR at 60% per year with a 20% loss margin scores 40 on the Rule of 40 and is considered healthy.
How ARR connects to B2B sales
ARR is not just a finance metric. In B2B SaaS sales, ARR drives quota design (sales reps are often given an ARR target), commission structure (AEs are typically paid a percentage of ARR closed), hiring plans (the number of SDRs and AEs needed to hit next year's ARR target), and customer success resourcing (how many CSMs you need per INR of ARR).
Frequently asked questions
- What is ARR in business?
- ARR stands for Annual Recurring Revenue. It is the total predictable recurring revenue a SaaS or subscription business would generate in a year from all active customers, assuming no new customers, no churn, and no expansion. ARR = MRR x 12. It is used for investor reporting, company comparisons, and annual planning.
- What is ARR full form?
- ARR full form is Annual Recurring Revenue. It is the annualised version of MRR (Monthly Recurring Revenue). ARR = MRR x 12. When a SaaS company says they are at "$5M ARR," they mean their business generates $5 million in predictable annual subscription revenue.
- What is the difference between ARR and MRR?
- ARR (Annual Recurring Revenue) is MRR (Monthly Recurring Revenue) multiplied by 12. MRR is the monthly view of subscription revenue; ARR is the annual view. MRR is used for operational tracking and month-to-month decisions. ARR is used for annual planning, investor reporting, and company-level comparisons. They contain the same underlying information, just on different time scales.
- What is a good ARR growth rate for SaaS?
- Early-stage B2B SaaS companies (under $1M ARR) typically target 2x to 3x ARR growth year-over-year. Growth-stage companies ($1M to $10M ARR) target 100%+ annual growth. At $10M+ ARR, 60 to 80% growth is considered strong. Mature SaaS companies ($50M+ ARR) may target 30 to 50% annual growth. The Rule of 40 (ARR growth rate + profit margin >= 40) is the benchmark used to evaluate overall health at scale.