What Is ARR (Annual Recurring Revenue)?
How to annualize your recurring revenue and why investors care about this number.
Definition
Annual Recurring Revenue (ARR) is your MRR multiplied by 12. It represents the annualized value of your recurring subscription revenue, assuming no changes in customers or pricing.
ARR is the standard metric for benchmarking SaaS companies at scale. While MRR is more useful for month-to-month operations, ARR is the language of fundraising and valuation.
How ARR Is Calculated
ARR = MRR × 12. That's it.
Some companies also calculate ARR by summing the annualized contract value of all active subscriptions. For businesses with mostly annual contracts, this approach can be more precise. Varsal computes ARR automatically from your MRR.
Track this metric live in your dashboard →Why ARR Matters
ARR makes SaaS companies comparable across stages and pricing models. A company at $1M ARR is at a fundamentally different stage than one at $10M ARR, regardless of whether they charge monthly or annually.
Valuation multiples are applied to ARR. Early-stage SaaS companies typically trade at 10–30x ARR, while high-growth public companies may command 15–50x ARR.
ARR Benchmarks
Key ARR milestones: $100K ARR marks product-market fit signals. $1M ARR is the most common Series A threshold. $10M ARR indicates strong scaling. $100M ARR is the gateway to IPO readiness.
The journey from $1M to $10M ARR typically takes 2–3 years for top-quartile companies. The "triple-triple-double-double-double" growth framework (T2D3) suggests tripling ARR twice, then doubling three times to reach $100M+ in 5–6 years.
ARR vs MRR — When to Use Which
Use MRR for operational decisions — it reflects recent changes faster and helps you spot trends month-to-month. Use ARR for strategic planning, fundraising, and benchmarking.
If your business has significant seasonality or one-time revenue, be careful about annualizing a single strong month. Some companies use a trailing 12-month calculation for a more conservative ARR figure.
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