Annual Recurring Revenue (ARR)

Annual recurring revenue or ARR represents the total yearly value of predictable, ongoing subscription or usage-based customer contracts. For software-as-a-service (SaaS) and other subscription models, ARR demonstrates stable revenue versus one-time purchases.

ARR is a key performance metric used for evaluating growth and planning budgets and targets. Increasing ARR depends on acquiring new customers and expanding existing accounts via upgrades, cross-sells, renewals, and increased usage or licenses. High ARR indicates healthy recurring income expected from the client base.

Tracking ARR over time provides visibility into retention and expansion. Forecasting based on ARR rather than one-time sales enables predictable growth. However, ARR projections require adjustments for possible churn, downgrades, and declining usage. ARR must be carefully monitored and managed.

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