What It Means (Simple Explanation)
ARR stands for Annual Recurring Revenue. It’s the total predictable revenue a SaaS company expects from subscriptions in a year. It typically excludes one-time fees, trials, and variable charges—it’s all about steady, repeat income.
Example
If a customer pays $500/month, that’s $6,000/year. That $6K counts toward your ARR.
Why This Matters (To SaaS & Finance Teams)
ARR is the long-term lens on your revenue. Investors care about it. Boards track it. And SaaS teams use it to see if they’re growing or just spinning wheels.
Ordway automatically tracks ARR by syncing contracts, billing, and renewals inside its subscription billing platform. You get a clean view—no spreadsheets needed.
How It Works (Break It Down Simply)
- Pricing for monthly subscriptions get multiplied by 12
- Annual contracts count in full
- Exclude one-time fees or usage-based extras
- Include only active, recurring revenue
ARR grows with new deals, renewals, and expansions—and drops with downgrades and churn.
Common Headaches
- Including non-recurring revenue by mistake
- Inconsistent ARR rules across teams
- Manual updates when plans or contracts change
- Reporting delays due to fragmented systems
Ordway gives a single source of truth—updated in real time.
Best Practices
- Define ARR clearly for your business (what’s in, what’s out)
- Track ARR by product line, segment, and region
- Watch how ARR changes with upgrades and churn
- Align finance, product, and sales around a shared ARR metric
When to Use ARR
Use ARR in annual planning, board decks, investor conversations, and growth models. It’s your anchor metric for long-term revenue.
KPI Impact / What It Affects
ARR affects growth rate, valuation, retention trends, and forecasting accuracy. A healthy ARR means a healthy business.
Real SaaS Takeaway
Ordway’s ARR Guide explains how ARR connects to product-market fit, pricing changes, and revenue forecasting. It’s not just a number—it’s a direction.
FAQ Section (Quick Answers to Real Questions)
What is ARR in SaaS?
Annual Recurring Revenue—your predictable yearly income from active subscriptions.
How is ARR different from revenue?
The revenue on the income statement includes all recurring and non-recurring (e.g., one-time fees, professional services, etc.). ARR is just recurring, annualized revenue.
Can I convert MRR to ARR?
Yes—just multiply monthly recurring revenue by 12.
Should usage-based revenue be in ARR?
Only if it’s recurring and predictable. Otherwise, leave it out.
Want to Go Deeper?
Let Ordway show you how to track ARR cleanly—across deals, renewals, and upgrades. Request a demo
Related Posts
Accounts Payable vs Accounts Receivable: The Key Differences Explained
10 Ways SaaS CFOs Can Improve Days Sales Outstanding (DSO)
