---
title: "ARR: annual recurring revenue"
url: "https://trialvalid.com/saas-metrics/arr.md"
canonical_url: "https://trialvalid.com/saas-metrics/arr"
last_updated: "2026-10-19"
type: "conceptual"
summary: "ARR is monthly recurring revenue times twelve, a run rate that shows scale and is not the revenue you have recognized."
related: ["https://trialvalid.com/mrr-calculator.md", "https://trialvalid.com/saas-metrics/mrr.md", "https://trialvalid.com/saas-metrics/arpu.md", "https://trialvalid.com/saas-metrics/net-revenue-retention.md"]
---

# ARR: annual recurring revenue

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ARR is monthly recurring revenue times twelve, a run rate that shows scale and is not the revenue you have recognized.

## Why it matters

ARR puts monthly recurring revenue on a yearly scale, which is how many people think about the size of a business. It is easier to say that a company has crossed a given annual figure than to quote a monthly one, and it is the figure often used when companies are compared.

It is a run rate and not a result. ARR says where the business would end up if this month repeated for twelve months, so it moves the moment MRR moves. It does not say how much revenue has been earned, and it should never be reported as if it did.

## The formula

In words: monthly recurring revenue multiplied by twelve.

In symbols:

```text
ARR = MRR x 12
```

- Build it from [MRR](https://trialvalid.com/saas-metrics/mrr.md), with one-off fees and trials left out.
- Read ARR at a stated date, usually the end of a month.
- Revenue recognized over a year is a different number, taken from the accounts.

## A worked example

Example numbers (made up for illustration): the same business read its MRR at the end of three months and multiplied each reading by twelve.

| Month end | MRR | MRR times 12 (ARR run rate) |
| --- | --- | --- |
| Month 1 | $40,000 | $480,000 |
| Month 2 | $42,500 | $510,000 |
| Month 3 | $44,500 | $534,000 |

Closing MRR of $44,500 times 12 is an ARR run rate of $534,000. The figure says where the business would land if the month stayed as it is for a year. It does not say how much revenue was earned.

ARR run rate at each month end (example numbers):

| Item | Value |
| --- | --- |
| Month 1 | $480,000 |
| Month 2 | $510,000 |
| Month 3 | $534,000 |

## How to improve it

ARR has no levers of its own. It improves when MRR improves.

- Add new customers and expansion revenue, which raise MRR and so ARR.
- Reduce churned and contracted revenue, which hold ARR down.
- Keep the definition steady, so a rise in ARR comes from customers and not from a new way of counting.
- Report ARR next to the movements behind it, so readers can see how it changed.

## Common mistakes

- Calling ARR revenue earned. It is a projection of the current month and not a total of past billing.
- Annualising a single unusually strong month, which makes the run rate look larger than the business is.
- Adding one-time fees or services to ARR, which are not recurring.
- Combining currencies without converting them on a stated date, so ARR changes with exchange rates alone.

## Work it out with your own numbers

The MRR calculator works out monthly recurring revenue, and multiplying its result by twelve gives your ARR. Open the [MRR calculator](https://trialvalid.com/mrr-calculator.md) and enter your own figures. It runs in your browser and shows each step of the sum.

## Read next

- [MRR](https://trialvalid.com/saas-metrics/mrr.md): the monthly figure that ARR is built from.
- [ARPU](https://trialvalid.com/saas-metrics/arpu.md): how much each paying customer adds.
- [Net revenue retention](https://trialvalid.com/saas-metrics/net-revenue-retention.md): how much of last year’s recurring revenue is still there.

## Questions

### Is ARR the same as annual revenue?

No. ARR is the current month of recurring revenue times twelve. Annual revenue is what was actually recognized over a year.

### When should I use ARR instead of MRR?

When you are describing size, especially for companies with annual contracts. MRR is better for tracking month to month change.

### Should one-off revenue be included?

No. ARR covers only revenue that recurs, so setup fees and one-time purchases stay out.

## Related

- [MRR calculator](https://trialvalid.com/mrr-calculator.md)
- [MRR: monthly recurring revenue](https://trialvalid.com/saas-metrics/mrr.md)
- [Average revenue per user (ARPU)](https://trialvalid.com/saas-metrics/arpu.md)
- [Net revenue retention (NRR)](https://trialvalid.com/saas-metrics/net-revenue-retention.md)