ARR, which stands for “Annual Recurring Revenue” is a common metric used by startups that sell software (or sometimes other products or services) on an annual subscription basis. The business model is often referred to as “SaaS”, which itself is short for “Software as a Service”.
Subscription business tend to have quite stable revenue from existing customers on an annual basis, though the amount earned in a particular month or quarter can vary widely depending on when their contracts renew. For example, many SaaS companies book the majority of their sales in the fourth quarter, so looking only at revenue for January won’t tell the full story (nor will only looking at Q4!)
To smooth out the bumps and paint a clearer picture of how a SaaS startup is doing, they will often refer to their total annual recurring sales, which is the ARR.
Companies that bill monthly instead of annually will typically use the term “MRR”, which stands for “Monthly Recurring Revenue”.
For more on analyzing subscription businesses, see [The 4 Numbers You Need to Know Before Investing in a Subscription or SaaS Business]/4-numbers-before-investing-in-subscription-business/.
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