ARR (Annual Recurring Revenue)

Annual Recurring Revenue is the normalised, annualised value of predictable subscription revenue that a company expects to receive if no contracts are added, lost, or changed. It strips out one-time fees, professional services, and variable usage overages to isolate the durable, repeating revenue base that investors use to value subscription businesses.

The standard calculation is straightforward: multiply Monthly Recurring Revenue by 12, or sum the annualised contract values of all active subscriptions. If a startup has 50 customers each paying ₹20,000 per year, ARR is ₹10 lakh. If 10 of those customers are on monthly plans at ₹2,000 per month, their contribution to ARR is ₹2,000 × 12 × 10 = ₹2.4 lakh.

ARR growth rate is a primary signal of business health. Investors at the Series A stage typically look for startups crossing ₹1–2 crore ARR with month-over-month growth exceeding 10–15%. At Series B and beyond, absolute ARR scale and net revenue retention (whether existing customers expand or churn) become equally important.

ARR is also the foundation of SaaS valuation multiples. Early-stage Indian SaaS companies have historically traded at 5–10x forward ARR in private markets, though multiples compress sharply when growth slows or net retention falls below 100%. Understanding ARR prevents founders from conflating booking value or total contract value with cash they actually receive.