ARR
ARR (Annual Recurring Revenue) is a key metric for measuring the health of a SaaS (Software as a Service) company, representing the total stable revenue the company can expect to receive each year from all of its subscription customers.
How it works
ARR is typically calculated based on customers' current subscription contracts, converting monthly or quarterly subscription fees into an annualized figure. This metric is essential for SaaS companies because it forecasts future cash flow and helps evaluate the company's growth potential and valuation.
Examples
- 1.A SaaS company offering project management software whose customers pay a total of $100,000 per month would have an ARR of $1.2 million.
- 2.When evaluating a CRM (customer relationship management) SaaS startup, investors pay close attention to its ARR growth rate and churn rate to gauge the sustainability of the business.
- 3.The management of a SaaS company uses ARR targets to shape its annual sales plans and budget allocations.
