Annual Recurring Revenue

What is Annual Recurring Revenue?

The total revenue earned for a product or service on a yearly basis.

Why is Annual Recurring Revenue important?

  • It highlights the overall health of an organization.

  • A business with less or no yearly recurring revenue would need to reconsider strategies to stay afloat.

  • On the other hand, above-expected revenue can motivate you for bigger projects.

  • How to calculate Annual Recurring Revenue?

  • Take the average cost of the product/service.

  • Multiply it with the number of paying customers.

  • Multiply this result with 12.

  • ARR = (Cost of Product or Service) x (# of customers) x (12 Months)

    P.S. Revenue is the total money earned whereas Profits are the surplus after subtracting business expenses.