ARR (Annual Recurring Revenue)

Annual Recurring Revenue (ARR) is a key performance indicator primarily used by companies that have a subscription-based business model. It measures the value of recurring revenue that a company can expect to receive over a one-year period. This metric helps businesses predict their revenue stream, making it easier to plan and budget for the future.

ARR typically includes revenue from subscriptions or contracts that regularly generate income. For instance, if a company sells software as a service (SaaS) with an annual subscription, the subscription fees would be included in the ARR.However, ARR usually excludes one-time payments or non-recurring fees. For example, it would not include revenue from an individual project, a one-time sale, or any additional non-recurring fees such as installation or setup charges.

As a metric, ARR gives a clear picture of a company's financial health from its core operations, not influenced by temporary or non-recurring factors. For SaaS and other subscription-based businesses, a higher ARR typically signifies greater stability and predictability in their revenue streams. It's worth noting that for ARR to remain a meaningful metric, the company needs to retain its customers over the course of the year, underscoring the importance of customer satisfaction and service quality.