ARR

Abbreviation · Startup & VC

Definitions

  1. Annual Recurring Revenue — the value of contracted recurring revenue normalized to a one-year period. The North Star metric for SaaS businesses. Not to be confused with a pirate's greeting.

    In plain English: How much money a subscription business can expect to make per year from its current customers — the most important number in SaaS.

  2. As a financial metric, ARR specifically counts only recurring subscription revenue — excluding one-time fees, professional services, and usage-based overages. The distinction matters because recurring revenue is valued at 10-20x by investors, while one-time revenue barely counts.

    Example: 'Our total revenue is $5M but our ARR is only $3.2M — the rest is professional services that investors discount heavily.'

    Source: financial nuance

Etymology

c. 2005
SaaS companies adopt Annual Recurring Revenue as their primary growth metric, distinguishing predictable subscription revenue from one-time sales
2015
Bessemer Venture Partners publishes the Cloud Index, making ARR the standard benchmark for SaaS company valuation
2020s
The 'Rule of 40' (ARR growth % + profit margin % > 40) becomes the gold standard for SaaS financial health

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