Annualized Run Rate
"ARR Tracking"
Overview
The Core Concept
ARR (Annual Recurring Revenue) is the annualized value of the recurring subscription components of your revenue.
If a customer pays $100/month, they contribute $1,200 to your ARR. It excludes one-time fees (like setup costs) and consulting services. It is the primary metric used to value SaaS companies because it represents stable, predictable cash flow.
Why It Matters
Valuation: SaaS companies are typically valued at a multiple of their ARR (e.g., 10x ARR).
Health Check: Tracking ARR growth month-over-month shows the true velocity of the business.
Forecasting: It provides a baseline for budgeting future expenses.
Key Components
New ARR: Revenue from new customers.
Expansion ARR: Revenue from upsells to existing customers.
Churned ARR: Revenue lost from cancellations.