What is ARR?

ARR stands for Annual Recurring Revenue. It is a key metric showing how much money your business brings in over a year from subscriptions — income that comes back again and again, not one-off purchases. ARR is the heartbeat of every subscription business, especially SaaS companies.

Think of it as your business's "base income". If you know customers pay a certain amount each month or year, you can calculate what you will reasonably earn in the coming year — assuming nobody cancels. That is a very different kind of certainty from starting every month at zero and hoping for new sales.

Important: ARR counts only recurring revenue. A customer who buys something once does not count. It is the predictable, repeating flow that matters — and that is exactly why investors love the number.

Why is ARR important for your business?

ARR gives you and any investors a clear picture of how stable and predictable the business is. A company with high and growing ARR is easier to plan, budget, and value, because you know roughly what money is coming in. It also makes it easier to hire or invest with confidence.

For anyone looking to raise capital or sell the company, ARR is often the first number investors look at. Stable, growing ARR signals a healthy business with loyal customers.

ARR in practice

Say you run a small SaaS company with 50 customers each paying £100 a month for your service. That is £5,000 per month, and multiplied by twelve months you land on £60,000 ARR. That is the figure you use when describing the company's size and growth.

If you then win more customers or raise prices, ARR rises; if you lose customers (churn), it falls. By tracking ARR over time, you see straight away whether the business is growing or shrinking — much clearer than looking at a single good month.