ARR and Rolling ARR (Annual Recurring Revenue)

What is ARR and what is its significant?

Annual Recurring Revenue (ARR) is a business metric used to measure the recurring revenue generated by a company's subscription-based products or services over a period of one year. ARR is important for companies using a subscription business model, particularly in the software-as-a-service (SaaS) industry, as it reflects the financial health and growth potential of the business. ARR provides investors, stakeholders, and management with a clear view of a company's future revenue streams, helping them make informed decisions about investment, growth, and development strategies. In today's SaaS business models, companies don't measure success through one-time sales, but rather through recurring revenue generated at regular intervals.

How do you calculate annual recurring revenue?

Calculating ARR involves dividing the total contracted revenue by the number of years covered by the contract. For instance, if a customer signs a four-year contract for $20,000, the ARR would be $5,000 per year.

Rolling Annual Recurring Revenue (Rolling ARR)

Rolling ARR is a metric used by businesses to track their ARR over a rolling period, typically the previous 12 months. It takes into account changes in revenue from new sales, renewals, and cancellations of subscriptions or contracts, and provides a more accurate representation of a company's revenue trends than simply using the current fiscal year's revenue. Rolling ARR helps businesses identify revenue growth and predict future revenue streams, which is important for planning and making informed business decisions.