ARR Calculator Formula
Understand the math behind the arr calculator. Each variable explained with a worked example.
Formulas Used
Annual Recurring Revenue (ARR)
arr = (monthly_subscriptions * 12) + annual_contracts + multi_year_annual_valueEquivalent MRR
mrr_equivalent = ((monthly_subscriptions * 12) + annual_contracts + multi_year_annual_value) / 12Monthly Subs as % of ARR
monthly_portion = ((monthly_subscriptions * 12) + annual_contracts + multi_year_annual_value) > 0 ? (monthly_subscriptions * 12) / ((monthly_subscriptions * 12) + annual_contracts + multi_year_annual_value) * 100 : 0Variables
| Variable | Description | Default |
|---|---|---|
monthly_subscriptions | Total Monthly Subscription Revenue(USD) | 50000 |
annual_contracts | Total Annual Contract Revenue(USD) | 200000 |
multi_year_annual_value | Multi-Year Deals (Annual Value)(USD) | 100000 |
How It Works
How to Calculate ARR
Formula
ARR = (Monthly Subscriptions x 12) + Annual Contracts + Multi-Year Deals (Annual Value)
ARR normalizes all recurring revenue streams to an annual figure. Monthly subscriptions get multiplied by 12, annual contracts are taken at face value, and multi-year deals are broken into their annual component. ARR excludes one-time fees like setup charges or professional services revenue.
Worked Example
A SaaS company earns $50,000/month from monthly plans, $200,000 from annual contracts, and $100,000/year from multi-year deals.
- 01Monthly subs annualized = $50,000 x 12 = $600,000
- 02ARR = $600,000 + $200,000 + $100,000 = $900,000
- 03MRR Equivalent = $900,000 / 12 = $75,000
Frequently Asked Questions
What should not be included in ARR?
Exclude one-time revenue like setup fees, implementation services, hardware sales, and professional services. Only include predictable, recurring subscription revenue that renews automatically or through contracts.
How is ARR used for company valuation?
SaaS companies are often valued as a multiple of ARR. Early-stage companies may command 10-30x ARR, while mature SaaS businesses trade at 5-15x ARR. The multiple depends on growth rate, margins, retention, and market size.
Learn More
Guide
Understanding SaaS Metrics
A comprehensive guide to SaaS metrics including MRR, ARR, churn rate, LTV, CAC, and the Rule of 40. Learn what to track and how to benchmark your SaaS business.
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