ARR (Annual Recurring Revenue)
ARR is not a revenue forecast. It's the annualized snapshot of recurring revenue already under contract today.
“ARR tells you what the company is worth today. NDR tells you whether that value will still exist in twelve months.”
Otto GTM ObservatoryWhat it represents and why investors care
ARR converts monthly recurrence into an annual figure readable by boards, investors, and strategic plans. It's not cash collected, it's recurring contractual commitment: the difference matters especially with prepaid or deferred annual payments.
B2B SaaS valuations use ARR multiples (typically 4-10x depending on growth and retention) precisely because it's a proxy for the predictability of future revenue, far more reliable than historical revenue in non-recurring businesses.
Anti-patterns
Recurring mistake: including professional services or consulting revenue tied to the contract in ARR, which by definition is not recurring. The resulting number doesn't hold up in due diligence.
Second mistake: reporting ARR growth without distinguishing how much comes from new logos versus expansion on existing customers, blending two very different commercial dynamics.
Practical Application
A company with €218,400 MRR closes the year with €2,620,800 ARR. With 94% NDR and an average monthly New MRR of €31,000, the 12-month projected ARR grows only 6.3% despite steady new customer acquisition: churn is absorbing almost all the gross growth generated by the commercial funnel.