Annual recurring revenue (ARR) is the predictable subscription revenue a company expects over a year, normalized to an annual figure. It counts recurring contracts only, excluding one-time fees and uncommitted usage.
ARR is the headline metric for subscription businesses. It turns a mix of monthly and annual contracts into one comparable number that boards, investors, and finance teams track quarter over quarter. Because it counts only committed recurring revenue, ARR is a measure of durable run-rate, not booked sales.
How Annual recurring revenue (ARR) works
ARR sums the annualized value of every active recurring contract at a point in time. An annual contract counts at its yearly value; a monthly subscription counts as its monthly recurring revenue times twelve. Recurring add-ons are included; one-time charges, setup fees, and uncommitted usage overages are excluded.
The simplest expression is ARR = MRR × 12. A fuller view nets in movement during the period: new ARR, expansion, contraction, and churned ARR. ARR is a snapshot of run-rate, so it is read at a moment in time rather than accumulated like recognized revenue.
Annual recurring revenue (ARR) examples
A customer on a $1,000 per month plan contributes $12,000 of ARR. A customer on a $24,000 annual contract contributes $24,000. A company with 50 customers averaging $1,000 per month carries $600,000 ARR.
For products with a fixed subscription plus metered usage, only the committed subscription counts toward ARR. A plan billed at $500 per month with variable token overage contributes $6,000 ARR; the overage is reported separately as usage revenue, because it is not contracted and not predictable.
Annual recurring revenue (ARR) vs MRR
| ARR | MRR | |
|---|---|---|
| Window | Annual run-rate | Monthly run-rate |
| Best for | Annual-contract businesses | Monthly-subscription businesses |
| Relationship | ARR = MRR × 12 | MRR = ARR ÷ 12 |
| Granularity | Board and investor reporting | Operational, month-to-month tracking |
Benefits & when to use it
ARR is the right top-line metric when revenue is contracted and predictable. It smooths the noise of billing cadence and makes growth comparable across periods and across companies.
It is a weaker fit for businesses whose revenue is mostly variable. A pure usage-based billing product has little committed recurring revenue, so ARR understates the business; those teams track usage revenue and run-rate separately. Hybrid products report both: ARR for the subscription base, usage revenue for consumption.
FAQ
What is the difference between ARR and revenue?
ARR is a forward-looking run-rate of committed recurring revenue at a point in time. Recognized revenue is the actual revenue earned over a past period under accounting rules. They differ because ARR ignores one-time fees, timing, and usage, while recognized revenue captures everything earned.
Does ARR include usage-based revenue?
No. ARR counts only committed recurring contracts. Variable, uncommitted usage is excluded and reported separately, because it is not predictable enough to belong in a run-rate metric.
How are discounts handled in ARR?
ARR is reported net of recurring discounts. A $12,000 annual contract sold with a 20 percent recurring discount contributes $9,600 of ARR, not $12,000.
How Credyt handles Annual recurring revenue (ARR)
Credyt is not an ARR reporting tool, but for usage- and credit-based products it supplies the real-time data those reports depend on. Credyt meters every usage event and attributes revenue and cost per customer, so finance can separate the committed subscription base from variable usage cleanly instead of untangling them after the fact. Explore Credyt →