Knowledge Base
What Is ARR (Annual Recurring Revenue)?
ARR is your MRR multiplied by 12. Learn when to use ARR vs MRR, the formula, and how ARR is used in SaaS valuations.
Last updated: April 2026
Definition
Annual Recurring Revenue (ARR) is the annualized value of your active recurring subscriptions. ARR equals your Monthly Recurring Revenue (MRR) multiplied by 12. It is the standard metric for SaaS companies with annual or multi-year contracts.
ARR Formula
The ARR formula is:
ARR = MRR × 12
For example, if your MRR is $83,000, your ARR is $83,000 × 12 = $996,000.
Alternatively, you can calculate ARR directly from annual contracts: ARR = Sum of annualized contract values for all active subscriptions.
ARR vs MRR: When to Use Which
ARR and MRR measure the same underlying metric at different time scales. The right choice depends on your billing model and audience.
| Use ARR when... | Use MRR when... |
|---|---|
| Most customers are on annual or multi-year contracts | Most customers pay month-to-month |
| Communicating with investors or board members | Tracking short-term growth trends week over week |
| Benchmarking against industry ARR milestones ($1M, $10M) | Measuring impact of monthly pricing changes |
| Calculating SaaS valuation multiples | Analyzing churn at the monthly level |
ARR in SaaS Valuations
ARR is the most common top-line metric used in SaaS company valuations. Investors apply a revenue multiple to ARR to estimate enterprise value.
| Growth Profile | Typical ARR Multiple | Example |
|---|---|---|
| Slow growth (<20% YoY) | 3-6x | $5M ARR × 5x = $25M valuation |
| Moderate growth (20-50% YoY) | 6-10x | $5M ARR × 8x = $40M valuation |
| High growth (>50% YoY) | 10-20x | $5M ARR × 15x = $75M valuation |
| Hypergrowth (>100% YoY) with strong NRR | 20-40x+ | $5M ARR × 30x = $150M valuation |
These multiples fluctuate with market conditions. Companies with net revenue retention above 120% consistently command premium multiples.
How to Calculate ARR from Stripe
To calculate ARR from Stripe, first compute your MRR using active subscriptions, then multiply by 12.
- Query all subscriptions with
status = active. - Normalize each to a monthly amount (divide annual plans by 12, multiply weekly plans by 4.33).
- Sum all normalized monthly amounts to get MRR.
- Multiply MRR by 12 to get ARR:
ARR = MRR × 12.
Common ARR Mistakes
These are the most frequent errors when calculating ARR:
- Including one-time revenue. Setup fees, consulting fees, and hardware sales are not recurring and must be excluded from ARR.
- Counting churned subscriptions. Only active subscriptions contribute to ARR. Canceled or past-due subscriptions should be excluded.
- Double-counting annual renewals. A customer who renews an annual plan does not add new ARR — they maintain existing ARR.
- Ignoring contraction. Customers who downgrade reduce your ARR. Failing to track this overstates your true recurring revenue.
- Mixing currencies. Normalize all subscriptions to a single currency before summing, using consistent exchange rates.
Frequently Asked Questions
What is ARR?
ARR (Annual Recurring Revenue) is your Monthly Recurring Revenue multiplied by 12. It represents the yearly value of your active subscriptions.
What is the difference between ARR and annual revenue?
ARR only counts recurring subscription revenue. Annual revenue includes one-time charges, setup fees, and services revenue.
When should I use ARR instead of MRR?
Use ARR when most customers are on annual contracts, when communicating with investors, or when your business exceeds $1M in recurring revenue.
What is a good ARR for a startup?
This varies widely. $1M ARR is a common milestone for Series A readiness. $100K ARR indicates strong product-market fit for bootstrapped businesses.
Track these metrics automatically
StripeReport connects to your Stripe account in under 2 minutes. $19.99/mo flat.
Start Free Trial