The annual recurring revenue (ARR) SaaS metric represents a business’ annual recurring revenue from term subscriptions normalized for one calendar year. It is calculated by subtracting lost recurring revenue from gained recurring revenue. ARR is a crucial metric for SaaS businesses that want to focus on product growth because it provides valuable insight into product revenue. Learn what ARR is, how to calculate it, and how to optimize it for growing your SaaS business. https://rampiq.agency/blog/saas-arr-metric/

1. ARR
(Sum of revenue from
new subscriptions,
add-ons, and upgrades)
-
(Sum of revenue lost
from cancellations
and downgrades)
Annual Recurring Revenue (ARR) Formula

2. What NOT to include in calculating SaaS ARR
Non-subscription revenue:
One-time fees:
Variable fees:
Credit adjustments:
Training and support:
Exclude any once-off or non-recurring fees, like set-up fees, late fees, or installation charges.
Exclude any revenue that is generated from non-subscription sources, like consulting fees or
professional services.
Exclude any revenue that is based on variable factors, like usage or transaction volume.
Exclude all adjustments to revenue from refunds, discounts, or credits given to customers.
Exclude operating expenses, like training and support, as these types of expenses inflate
ARR and provide an inaccurate representation of the company's recurring revenue stream.

3. CARR
(Total recurring
revenue from new
subscriptions in a
period)
+
(Recurring revenue
from existing
subscriptions at the
beginning of the period)
Committed Annual Recurring Revenue
(CARR) Formula
-
(Churned revenue
from existing
subscriptions
during the period)

4. MRR vs. ARR
MRR
Total amount of revenue
generated from recurring
sources each month
ARR
MRR provides a granular view
MRR = ARPU x MS
Monthly growth of the
company
Total amount of revenue
generated from its recurring
revenue sources in a year
ARR provides a snapshot
ARR = MRR x 12
Yearly growth of the
company

5. ARR
growth rate
x
(Current year’s ARR - previous year’s ARR)
ARR Growth Rate Formula
Previous year’s ARR
100