ARR means annual recurring revenue: the yearly value of your active subscriptions, assuming nothing changes. That is the whole meaning of ARR in SaaS and startup finance — it is the number investors quote, the number funding announcements lead with, and the number most likely to be quietly inflated. Calculated honestly, it is just your recurring revenue at annual scale.
The formula
ARR = MRR x 12
That is genuinely all it is for most SaaS businesses. If your MRR is €8,600, your ARR is €103,200. The two numbers carry identical information at different zoom levels; ARR just sounds like a company and MRR sounds like a month.
For businesses selling mostly annual contracts there is a direct route: sum the annual value of every active contract. A customer on a €12,000 per year plan contributes €12,000 of ARR. Both routes must agree, because an annual contract is €1,000 of MRR by definition.
What ARR is not
ARR is not revenue you have earned. It is a run rate: what the next twelve months look like if every subscription simply continues. Churn, expansion, and new sales will all make the real year different.
ARR is not your bookings. A €36,000 three-year deal signed today is €12,000 of ARR, not €36,000. Counting multi-year totals is the classic inflation trick, and diligence catches it every time.
ARR is not "annualized revenue." Taking one strong month, including one-time fees and usage spikes, and multiplying by 12 produces a number that looks like ARR but predicts nothing. Only recurring revenue belongs in it; the same rules that govern MRR apply times twelve.
When to use ARR, and when MRR
| Situation | Use |
|---|---|
| Weekly operations, runway math, spotting churn early | MRR |
| Mostly monthly plans, early stage | MRR |
| Mostly annual contracts, B2B sales cycles | ARR |
| Talking to investors, benchmarks, fundraising | ARR |
| Board reporting at later stage | ARR, with MRR movements attached |
The pattern: MRR is the operating number, ARR is the communicating number. Investors think in ARR because valuations and benchmarks are quoted against it. You should run the company on MRR because a month is short enough to react to; a full breakdown of the tradeoffs is in MRR vs ARR.
A worked example
A startup has 40 customers on €99 per month, 10 customers on €190 per month, and 5 annual contracts at €4,800 per year.
| Group | MRR | ARR |
|---|---|---|
| 40 x €99 monthly | €3,960 | €47,520 |
| 10 x €190 monthly | €1,900 | €22,800 |
| 5 x €4,800 annual | €2,000 | €24,000 |
| Total | €7,860 | €94,320 |
One honest sentence for an investor update: "We are at €94k ARR, growing 6% month over month." Both halves of that sentence come straight from the table, and you can compute yours in a minute with the free MRR calculator, which shows ARR alongside.
The other ARR: accounting rate of return
One disambiguation worth thirty seconds, because the same three letters live in two different textbooks. In corporate finance, ARR can also mean accounting rate of return: average annual accounting profit of an investment divided by its initial cost, used to compare capital projects. If you are reading about SaaS, startups or fundraising, ARR means annual recurring revenue. If you are reading a capital-budgeting chapter, it means accounting rate of return. The two share nothing but the initials, and mixing them up in an investor conversation is a mistake you only make once.
The habit that keeps ARR honest
ARR drifts from reality in companies that compute it once a quarter from memory. It stays honest in companies where it falls out of the live subscription list automatically, which is how Plainhub treats it: record the customer once, and MRR, ARR, and the growth rate stay current without a spreadsheet.
Quote ARR when you talk about the company. Run the company on the monthly number underneath it. And never let a number you would not defend in diligence into either one.