Annual Recurring Revenue ARR (with MRR = Monthly Recurring Revenue)
The annualized value of a subscription business's recurring revenue at a point in time.
The fork, why two teams get different numbers
ARR is an operating metric with no accounting standard, so annualization
conventions collide. One team defines ARR as month-end MRR × 12 (a snapshot
run-rate); another sums each customer's committed annual contract value; a
third annualizes the trailing quarter's recurring revenue × 4. For usage-based
and hybrid products the split widens: does "recurring" include consumption
overages, one-time onboarding fees, professional services, or only the
committed subscription floor? The same company can honestly report meaningfully
different ARR figures depending on which lever it pulls.
The trap
ARR routinely gets contaminated with non-recurring revenue, implementation fees, one-time services, and unpredictable usage overages, inflating a "run rate" that cannot actually recur.
- The full trap, worked on a real export
- Every formula variant, spelled out
- The reconciliation anchor, what to tie it to and when to refuse
Reference: Non-GAAP operating metric, no authoritative standard; SEC guidance on consistent presentation of key operating metrics