Annual recurring revenue (ARR)

Annual recurring revenue, usually shortened to ARR, is the yearly value of revenue a subscription business expects from active recurring contracts. A company commonly calculates it by taking current monthly recurring revenue and multiplying by twelve, or by annualizing each customer contract. ARR excludes one-time implementation fees, hardware sales, and other revenue that will not repeat under the existing agreement.

In a pitch deck, ARR is useful only when its definition is consistent. Investors will want to know whether the figure represents signed contracts, live customers, or a looser “run rate” that includes expected deals. ARR growth becomes more informative when paired with retention, expansion, customer concentration, and gross margin. A startup with $1 million of ARR spread across hundreds of retained customers has a different risk profile from one with the same ARR concentrated in two pilots. Founders should label the measurement date and avoid presenting projected year-end revenue as current ARR.