Annual Recurring Revenue (ARR)

ARR is calculated by taking committed subscription contracts and normalising them to a yearly figure: a $2,000 monthly contract contributes $24,000 of ARR regardless of billing frequency.

The metric's usefulness depends entirely on discipline about what counts. Companies that fold usage-based revenue, services or non-committed spend into ARR produce a number that looks like a run rate but behaves like a forecast.

Investors typically evaluate ARR alongside net revenue retention and growth rate, because ARR alone says nothing about whether that revenue survives the next renewal cycle.