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Stands forAnnual Recurring Revenue

initialismA R R, letter by letter

What Does ARR Stand For?

BusinessStartupsUpdated Oct 30

What does ARR stand for? Most often, in business, the letters mean Annual Recurring Revenue, the amount of predictable income a company expects from subscriptions or contracts over one year. It is the headline number for software and other subscription companies, the kind of business that bills customers every month or every year instead of selling once.

Outside of offices, the letters have other jobs. On a train or flight board, arr. means arrival. On sheet music, arr. means arranged by. And in pirate talk, "arr" is just a growl. This page covers the business meaning first and then the others.

Quick facts

  • Stands for

    Annual Recurring Revenue
  • Type

    Initialism, said A R R
  • Used in

    Subscription and software companies, investor updates
  • Basic formula

    Monthly recurring revenue times 12
  • Related terms

    MRR, churn, ACV, SaaS
  • Other meanings

    arr. for arrival, arr. for arranged by
  • Not to be confused with

    Total revenue, which includes one time sales

What does ARR stand for in business?

Each word narrows what is counted:

  • Annual: measured over a year.
  • Recurring: only income that repeats, such as a yearly license or a monthly plan.
  • Revenue: money earned from customers, before costs.

One time setup fees, training sessions and hardware sales are left out, because they will not repeat on their own. That is what makes ARR useful: it shows the steady base a company can plan around. The term is most common at SaaS firms, where customers pay for software as a service. More money and management terms are collected on the business acronyms hub.

How to calculate annual recurring revenue

There are two common ways, and they should land close to each other.

  1. From monthly figures: take monthly recurring revenue (MRR) and multiply by 12.
  2. From contracts: add up the yearly value of every active subscription.

Many teams also track how ARR changes over a period:

  • New ARR: from customers who just signed.
  • Expansion ARR: from existing customers who upgrade or add seats.
  • Churned ARR: lost when customers cancel.
  • Contraction ARR: lost when customers downgrade.

In a board update: "We closed the quarter at 4.8 million ARR, up from 4.1 million, with 0.9 million new and expansion ARR and 0.2 million churned." Readers can see how much of the growth came from new deals and how much was lost to cancellations.

ARR vs MRR, ACV and total revenue

How ARR compares with related revenue terms
TermStands forWhat it shows
ARRAnnual recurring revenueYearly value of all active subscriptions
MRRMonthly recurring revenueThe same base, viewed one month at a time
ACVAnnual contract valueAverage yearly value of a single contract
Total revenueNo acronymAll income, including one time sales

ARR is a business metric, not an accounting rule. It does not appear as a line on standard financial statements prepared under GAAP, and each company sets its own definition. When you compare two companies, check how each one counts it.

General information only: nothing here is financial or investment advice. For how ARR or revenue should be reported for a specific company, talk with an accountant or financial professional.

Why investors and teams watch ARR

Subscription businesses often spend heavily up front to win a customer and earn the money back over time. ARR helps everyone see whether that is working. Investors look at its growth rate, often alongside CAGR. Sales teams set targets in new ARR. Finance teams use it to forecast hiring and spending. Product teams watch churn to see whether customers find enough value to stay.

A company with strong ARR growth but high churn may be filling a leaky bucket. That is why many reports pair ARR with net revenue retention, which shows how much of last year's base is still paying, including upgrades.

Other meanings of arr

  • Arrival (arr.): on transit timetables and flight boards, next to dep. for departure. "Arr. 6:45 p.m."
  • Arranged by (arr.): on sheet music, to credit the person who adapted a song for a choir or band. "Arr. J. Lee."
  • Pirate talk: "arr" or "arrr" is a playful growl, not an abbreviation at all.

These uses are usually written in lowercase with a period, while the business term is in capitals with no periods. Capital letter metrics and lowercase clipped words are two different animals, as acronym vs abbreviation shows.

Using the ARR acronym in a sentence

  • "Our goal is to reach 10 million ARR by the end of next year."
  • "Expansion ARR outpaced new logos this quarter."
  • "Divide ARR by 12 to get MRR."
  • "Train 412 arr. 9:10, platform 3."
  • "The choir sang a folk tune, arr. by our director."

Say the business term letter by letter, "A R R." Because A is a vowel sound, write "an ARR target."

Questions people ask

What does ARR stand for in business?

Annual recurring revenue. That is the yearly value of predictable subscription or contract income, leaving out one time sales.

How is ARR calculated?

The simplest way is to multiply monthly recurring revenue by 12. Another way is to add the yearly value of all active subscriptions.

What is the difference between ARR and revenue?

Revenue includes every sale, including one time fees. ARR counts only income that repeats, so it shows the steady base of a subscription business.

What does arr. mean on a train schedule?

It means arrival, the time the train is due to reach a station. It usually appears next to dep. for departure.

Is ARR a GAAP measure?

No. ARR is a business metric that companies define for their own reporting, so definitions vary between companies.