What is Annual Recurring Revenue (ARR)?
Annual Recurring Revenue (ARR) is the annualized value of recurring subscription revenue. It's the single most important metric for SaaS businesses and is calculated by multiplying Monthly Recurring Revenue (MRR) by 12, or by summing all active annual subscription values.
ARR is the foundation of SaaS valuation. In 2026, public SaaS companies trade at 5-15x ARR depending on growth rate, retention, and profitability. Private companies in growth stage typically value at 10-30x ARR.
ARR only includes recurring revenue — one-time fees, professional services, and usage overages are excluded unless they're contractually recurring. This distinction matters for valuation because investors value predictable, recurring revenue at a significant premium over variable revenue.
Why It Matters
ARR is the language of SaaS valuation. Whether you're raising funding, preparing for acquisition, or benchmarking performance, ARR and its growth rate determine how the market values your business. Use the Enterprise Value Scenario Engine (EV-SE) at richardewing.io/tools/ev-se to model how ARR changes affect enterprise value.
Frequently Asked Questions
What is ARR?
Annual Recurring Revenue is the yearly value of recurring subscription revenue. It's calculated by multiplying MRR by 12 or summing all active annual subscriptions.
What is a good ARR growth rate?
It depends on stage. Seed to Series A: 3x year-over-year. Series A to B: 2.5-3x. Series B+: 2x. Public companies: 20-30% is strong.
How is ARR used in SaaS valuation?
SaaS companies are valued as a multiple of ARR. In 2026, multiples range from 5-15x for public companies and 10-30x for high-growth private companies.
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Richard Ewing is a Product Economist and AI Capital Auditor. He helps companies translate technical complexity into financial clarity.
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