Annual Run Rate

FAQ

• What is Annual Run Rate and how is it calculated for a SaaS business?

  Annual Run Rate (ARR) is your current Monthly Recurring Revenue multiplied by 12, giving you an annualized snapshot of recurring revenue based on where your business stands today.
  
  It assumes nothing changes over the next 12 months: no new customers, no churn, no pricing shifts. That makes it a projection, not a guarantee, but it is one of the most widely used ways to communicate the scale of a subscription business to investors or set internal growth targets. To calculate it correctly, use only earned recurring revenue. Exclude one-off payments, setup fees, and non-recurring charges, and apply accrual accounting so annual contract values are spread across 12 months rather than recognized upfront. Baremetrics calculates ARR automatically from your Stripe, Braintree, or Recurly data, so you always have a clean, accurate figure without building it in a spreadsheet.
• What is the difference between Annual Run Rate and MRR?

  Annual Run Rate and MRR measure the same underlying recurring revenue, but ARR annualizes that figure across 12 months while MRR covers a single month.
  
  MRR is the more immediate signal. It is the metric you check week to week to spot early churn, track new customer momentum, or measure the impact of a pricing change. ARR gives you the bigger picture, useful for investor conversations, annual planning, and understanding the overall size of your subscription business. Both metrics are calculated on earned recurring revenue only, which means one-off payments and non-recurring income are excluded from both. If your MRR is $100k, your ARR is $1.2M. The two numbers move together, so improving MRR is the fastest lever for improving your annual run rate.
• Why is Annual Run Rate an unreliable forecast when used on its own?

  ARR assumes your revenue stays completely flat for 12 months, so it ignores churn, new customer acquisition, and expansion revenue entirely.
  
  For seasonal subscription businesses, or any SaaS company that closes a large contract in a single month, ARR can look inflated if calculated from that one data point. A more reliable approach is to calculate ARR from a quarterly MRR figure: add up the recurring revenue from three months and multiply by four to smooth out month-to-month swings. More importantly, no single ARR number tells you much on its own. The metric that actually matters is the trend over time, which shows whether your recurring revenue base is accelerating, flattening, or declining. Pairing ARR with churn rate, expansion MRR, and net revenue retention gives you a far more complete picture of business health.
• How does Annual Run Rate differ from Annual Contract Value and Total Contract Value?

  Annual Run Rate reflects your entire business trajectory, while Annual Contract Value (ACV) and Total Contract Value (TCV) measure the revenue tied to individual customer contracts.
  
  ARR is a company-wide metric: your MRR times 12, applied across your full subscriber base. It answers the question of how large your recurring revenue business is right now. ACV is the annualized revenue from a single customer contract, which makes it useful for comparing deal sizes across your sales team or pricing tiers. TCV is the full expected revenue from a contract over its entire term, including multi-year commitments. SaaS founders and finance leads typically use ARR for forecasting and investor reporting, while ACV and TCV help evaluate the profitability and lifetime value of individual customer relationships.
• How can I use ARR tracking software to monitor Annual Run Rate over time?

  The most useful way to track Annual Run Rate is to monitor its trend continuously rather than checking a single snapshot, which means you need a live dashboard connected to your billing data.
  
  Static spreadsheets break down fast. Every new subscription, cancellation, upgrade, or failed payment changes your MRR, and by extension your ARR, in real time. A dedicated subscription analytics platform pulls that data directly from your payment processor and keeps your ARR figure current without manual updates. Baremetrics connects to Stripe, Braintree, and Recurly and surfaces ARR alongside the metrics that explain it: new MRR, churned MRR, expansion MRR, and contraction MRR. Tracking all of these together lets you see exactly what is driving your annual run rate up or down, so you can act on the right lever rather than just watch the top-line number move.