Enter the average monthly recurring revenue ($) and the number of customers into the calculator to determine the Annual Recurring Revenue. 

Annual Recurring Revenue Formula

The following formula is used to calculate the Annual Recurring Revenue. 

ARR = MRR * C *12
  • Where ARR is the Annual Recurring Revenue ($/year)
  • MRR is the average monthly recurring revenue ($) 
  • C is the number of customers 

To calculate the ARR, multiply the MRR per customer by the number of customer, then again by 12.

How to Calculate Annual Recurring Revenue?

The following example problems outline how to calculate Annual Recurring Revenue.

Example Problem #1:

  1. First, determine the average monthly recurring revenue ($). In this example, the average monthly recurring revenue ($) is given as 174.
  2. Next, determine the number of customers. For this problem, the number of customers is given as 90.
  3. Finally, calculate the Annual Recurring Revenue using the equation above: 

ARR = MRR * #C *12

The values given above are inserted into the equation below:

ARR = 174 * 90 *12 = 187,920 ($/year)

FAQ

What is the significance of calculating Annual Recurring Revenue (ARR) for a business?

Calculating ARR is crucial for subscription-based businesses as it provides a clear picture of the predictable and stable revenue generated over a year. This helps in financial planning, forecasting, and assessing the business’s growth and sustainability.

Can ARR be used to measure the performance of non-subscription-based businesses?

While ARR is primarily designed for subscription-based models, it can offer insights into the recurring revenue streams of non-subscription businesses that have predictable, repeat sales. However, it may not fully capture the financial health of businesses relying heavily on one-time sales.

How does the number of customers affect the Annual Recurring Revenue?

The number of customers directly impacts ARR as it is a multiplier in the calculation. Increasing the customer base typically leads to higher ARR, assuming the average monthly recurring revenue per customer remains constant. This highlights the importance of customer acquisition and retention in growing the ARR.