Annual Recurring Revenue (ARR)

ARR is a key measure for subscription businesses, especially software companies selling annual or multi-year contracts. It shows the predictable, recurring part of revenue, excluding one-time fees such as setup charges or consulting.

For example, a company with 2,000 customers each paying 1,200 a year for a subscription has ARR of 2,400,000.

ARR changes as new customers sign up, existing customers upgrade or downgrade and some customers cancel. Tracking these movements helps companies understand growth and retention.

ARR is not defined by accounting standards, so companies calculate it in different ways. Some include contracted subscriptions that have not yet started, or usage-based revenue. ARR also differs from recognised revenue, which follows accounting rules and timing. Investors value ARR because recurring revenue is more predictable than one-off sales, but they should check how each company defines it.