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Annual Recurring Revenue (ARR)

A key financial metric used by subscription-based or recurring revenue businesses to quantify the predictable and recurring revenue that a company expects to generate annually from its customers. ARR is calculated by annualizing the recurring revenue components of all active customer contracts, excluding any one-time fees or irregular payments. This metric provides a clear picture of the company’s financial health, growth potential, and stability, as it reflects the consistent revenue stream that can be expected each year. ARR is crucial for long-term strategic planning, investor relations, and performance benchmarking within industries that rely on recurring revenue models.

Related Terms

Annual Contract Value (ACV)

Annual Contract Value (ACV) measures yearly revenue from a customer contract in subscription models. It helps businesses with financial planning, sales forecasting, and performance analysis.

Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) estimates total revenue from a customer over their relationship. It guides acquisition and retention strategies, calculated as purchase value × frequency × customer lifespan.

Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue (MRR) is the predictable revenue from subscriptions each month, including new sign-ups, renewals, and upsells, providing insight into a company's financial health and growth.

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