ARR (Annual Recurring Revenue)
The annualised value of contractual recurring revenue, used primarily in SaaS and subscription businesses. It excludes one-off fees, ad-hoc services and non-contractual variable income.
In practice
ARR is the reference metric for software investors. An ARR of 1 million euros with 5% annual churn reads very differently from the same ARR with 20% churn: in the second case, half the customer base disappears in under four years without any new acquisition. The correct calculation excludes one-off contracts and unpaid pilots, and treats annual or multi-year signed contracts as ARR regardless of whether they are billed monthly.