Quick definition: ARR is the total annual recurring, predictable revenue of a subscription-based business. The foundational metric for valuing SaaS companies.
How it's calculated
ARR = (Monthly Recurring Revenue × 12). If your company's MRR is $100,000, your ARR is $1,200,000.
Annual subscriptions are added directly to ARR. One-time sales are not included — only recurring revenue counts.
Why it matters
A SaaS company's valuation is typically calculated by investors as 5–15× ARR. Higher growth-rate companies command higher multiples.
Operationally, ARR shows predictability for the next 12 months. That's why it's the primary metric for banks, investors, and internal planning.