What is Annual Recurring Revenue (ARR)?
Annual recurring revenue (ARR) is the annualized value of active recurring subscriptions, excluding one-time fees. It is the primary growth metric for SaaS companies.
ARR represents the predictable, recurring revenue a company expects to generate over the next 12 months from its existing customer base. It's calculated by annualizing monthly recurring revenue (MRR × 12) or summing all active annual contract values.
Why ARR Matters for Sales Leaders
ARR is the metric that determines company valuation, fundraising, and sales compensation. A VP Sales at a $10M ARR company faces very different challenges than one at $100M ARR. ARR growth rate is the primary indicator boards use to evaluate sales leadership effectiveness.
ARR vs Revenue
ARR only counts recurring subscription revenue. It excludes one-time implementation fees, professional services, and hardware sales. A company might have $15M in total revenue but only $10M in ARR if $5M comes from services.
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