How to calculate ARR
Take the recurring subscription revenue for the current month, with annual plans counted at one twelfth of their price, and multiply by 12. A service with $40,000 of MRR has $480,000 of ARR.
What ARR excludes
For a service that earns mainly from ads or transactions, ARR describes only a small part of the business.
- Rentals, purchases and pay-per-view
- Advertising
- Coin packs and other one-time in-app purchases
- Setup or service fees
ARR vs annual revenue
ARR is a snapshot of the present run rate, not a total of what was earned in the past twelve months and not a forecast. It assumes nobody joins or leaves. Because monthly subscribers can cancel at any time, a consumer service's ARR is less certain than that of a business with annual contracts.
It is most useful for comparing size between periods and for conversations with investors, who commonly think in ARR.
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