ARR is your recurring revenue expressed as a yearly figure.

It matters because plans, hiring and valuations are made in years.

ARR and MRR describe the same revenue on two scales. Teams that sell monthly plans tend to run the business on MRR and quote ARR to investors. Teams that sell annual contracts work in ARR directly.

Either way, it answers one question: if nothing changed from today, how much subscription revenue would the next 12 months bring?

Multiply MRR by 12, or add up the yearly value of every contract.

ARR = MRR × 12
ARR from contracts = sum of each contract's value per year
a multi-year contract counts as its total value ÷ its length in years

ARR is a run rate, not the revenue you report for the year.

ARR takes today's subscriptions and multiplies them out. The revenue you actually record in a year depends on when each customer joined and left. A business that grew all year ends December with an ARR well above what it earned in those 12 months.

ARR is not bookings either. A signed contract that starts in three months is a booking today and becomes ARR on the day the subscription starts.

Because ARR is one month multiplied by 12, anything unusual in that month is multiplied too. Before you quote it, check that the month you are multiplying is a normal one, with no one-off deal or short-lived promotion inside it.

ARR grows the same way MRR does, twelve times over.

• Every dollar of MRR is 12 dollars of ARR. Adding $1,000 of MRR adds $12,000 of ARR. So does keeping $1,000 of MRR that would have churned.
• Annual plans have fewer payments that can fail. A customer who pays for the year has one charge that can be declined, not twelve.
• Retention counts as much as sales. ARR you keep and expand from existing customers shows up in net revenue retention.

For a SaaS that sells through free trials, new ARR begins with trials that pay. 1Capture authorizes the first payment when a trial starts and collects it when the trial ends. The trial conversion rate calculator shows what each extra point of conversion adds in ARR.

These mistakes make ARR mean something else.

• Counting one-time fees. Setup, services and one-off usage do not recur, so they stay out of ARR.
• Annualizing a spike. If MRR jumped on a one-month promotion that will not renew, MRR × 12 overstates the year.
• Mixing bookings into ARR. Count a contract when its subscription starts, not when it is signed.
• Counting the full value of a multi-year deal. A 3-year contract for $36,000 is $12,000 of ARR, not $36,000.