Annual Recurring Revenue (ARR) is the total annualized value of a company’s customer contracts. While most appropriate for subscription SaaS businesses selling annual contracts, some companies that sell monthly contracts or have transaction/usage based pricing will also use ARR as a revenue metric. The formula SaaSGrid uses to calculate ARR for a given month is:
ARR = Sum of revenue from all customers x 12
For quarterly and annual aggregations, the formula uses the last month in the period.
The best way to measure ARR growth is Compound Monthly Growth Rate (CMGR). CMGR averages monthly growth over a period: SaaSGrid calculates Last 6 Months (L6M) and Last 12 Months (L12M) CMGR. The formula for CMGR, where n = 6 for L6M CMGR or n = 12 for L12M CMGR, is: