Software and internet platforms
Annual recurring revenue (ARR)
The yearly value of all active subscription contracts at a point in time.
Facts checked against sources onWhat does Annual recurring revenue (ARR) mean?
ARR is a company's recurring subscription revenue, scaled to a year, at a given moment. It usually leaves out one-off fees such as setup and services. Example: 400 customers each paying 250 a month is monthly recurring revenue (MRR) of 100,000, or ARR of 1.2 million. An ARR bridge explains how it moved: opening ARR plus new customers plus expansion (upgrades) minus contraction (downgrades) minus churn equals closing ARR. ARR is a snapshot, not the revenue in the accounts, and companies define it in slightly different ways, so check the definition.
Where does it come up in case interview prep?
- How software and SaaS companies workLesson in Software and SaaS
- SaaS unit economics: ARR bridge, NRR, CAC payback, and rule of 40Lesson in Software and SaaS
- Software and SaaS: players, trends, regulation, and how to crack the casesLesson in Software and SaaS
- How the cybersecurity industry worksLesson in Cybersecurity
- Cybersecurity economics: breach risk, SaaS and servicesLesson in Cybersecurity
- Cybersecurity: players, trends, rules and casesLesson in Cybersecurity
Related terms
- Net revenue retention (NRR)How much recurring revenue a group of existing customers brings in a year later.
- Run rateCurrent performance scaled up to a full year.
- Churn and retentionThe share of customers who leave in a period, and the share who stay.
- CAC payback periodHow many months of gross profit it takes to earn back the cost of winning a customer.
- Rule of 40A software company's growth rate plus its profit margin should add up to at least 40 percent.
- Gross merchandise value (GMV)The total value of goods or services sold through a platform.
- CPM (cost per thousand impressions)The price an advertiser pays for 1,000 views of an ad.
- CPC (cost per click)The price an advertiser pays each time someone clicks an ad.
Learn it in context
See Annual recurring revenue (ARR) at work in a lesson from Software and SaaS, with checks as you go.
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