Annual Recurring Revenue (ARR): A key performance metric used by subscription-based businesses to measure the value of their recurring revenue on an annual basis. ARR provides a normalized view of revenue, allowing businesses to track growth and forecast future revenue more accurately.
Calculation: ARR is calculated by multiplying the monthly recurring revenue (MRR) by 12, providing a standardized annual perspective. It includes all subscription revenue components, such as upgrades, downgrades, and churn, but excludes one-time fees and non-recurring revenue.
Importance: ARR is crucial for evaluating the health and sustainability of a business's subscription model. It helps companies understand their long-term financial performance, attracts investors by demonstrating predictable revenue streams, and guides strategic decisions by highlighting trends in customer acquisition and retention.
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