Subscription metrics
ARR calculator
Annual recurring revenue is monthly recurring revenue multiplied by twelve. Resisting the urge to make it more interesting is most of the discipline.
Compounded over twelve months for the projection below.
ARR
$34,959.96
- ARR in twelve months
- $70,346.31
- At the growth rate above, compounded. A projection, not a commitment.
- Net new ARR
- $35,386.35
ARR = MRR × 12
ARR is MRR times twelve, and nothing else
The two carry identical information, so choosing between them is about audience rather than accuracy. MRR moves visibly week to week, which makes it the operating number. ARR is what investors, acquirers and benchmarks speak in.
Use whichever your reader thinks in, and never put both on the same chart.
Three ways ARR gets inflated
Annualising a good month. Taking December's revenue and multiplying by twelve is a forecast, not a run rate, and December probably contained one-off sales that will not repeat.
Counting one-off revenue. Setup fees, consulting, lifetime deals and one-time purchases are real money and they are not recurring.
Counting bookings. A signed annual contract that starts next quarter is a booking. Adding it to ARR today reports revenue you have not begun to earn.
The test is simple: if everything stopped changing today, would this amount arrive over the next twelve months? If not, it is not ARR.
ARR is not cash
A business at $120k ARR selling annual plans may have collected most of that already. The same business selling monthly has collected a twelfth of it.
Identical ARR, completely different runway. ARR describes the book; it says nothing about when the money arrives, which is the thing that decides whether you make payroll.
About the projection
The twelve-month figure compounds your monthly growth rate, which is the right arithmetic and the wrong model for most businesses. Growth rates decay as the base grows, so a constant rate flatters the far end of any projection.
Treat it as a sanity check on what a rate implies rather than as a plan. If the number looks implausible, the rate is probably not sustainable for twelve months.
Questions
- How do you calculate ARR?
- Multiply monthly recurring revenue by twelve. Anything smoothed, forecast or annualised differently is not ARR, it is a projection wearing a metric's name.
- Is ARR just MRR times 12?
- Yes. The two carry identical information, so the choice between them is about who is reading rather than about accuracy.
- Can I include one-off sales in ARR?
- No. Setup fees, consulting, lifetime deals and one-time purchases are real money and they are not recurring. If everything stopped changing today and the amount would not arrive again over the next twelve months, it is not ARR.
- Is ARR the same as revenue?
- No. ARR is the annualised value of the subscriptions you hold right now. Revenue is what actually arrived in a period, including one-off sales and excluding subscriptions that have not billed yet.
- Should I report ARR or MRR?
- MRR while you are building, because it moves visibly week to week and you can act on it. ARR when talking to investors, acquirers or benchmarks, because that is the unit they think in.