{"id":10287,"date":"2026-10-26T16:11:20","date_gmt":"2026-10-26T15:11:20","guid":{"rendered":"https:\/\/www.innowerft.com\/?p=10287"},"modified":"2026-10-26T16:12:44","modified_gmt":"2026-10-26T15:12:44","slug":"arr-annual-recurring-revenue-measure-for-recurring-revenue","status":"publish","type":"post","link":"https:\/\/www.innowerft.com\/en\/arr-annual-recurring-revenue-massstab-fuer-wiederkehrende-einnahmen\/","title":{"rendered":"What is ARR (Annual Recurring Revenue)?"},"content":{"rendered":"

ARR (Annual Recurring Revenue)<\/strong> refers to the annualised value of a company\u2019s recurring revenue. This metric is particularly important for start-ups with subscription or Software-as-a-Service (SaaS) business models.<\/p>\n

It shows the annual turnover generated by current subscriptions and contracts. This enables founders to track their business performance and helps them explain the growth potential of their business model to investors.<\/p>\n

 <\/p>\n

How is ARR calculated?<\/h2>\n

In subscription-based business models, companies often calculate this key figure based on monthly recurring revenue.<\/p>\n

The formula is:<\/p>\n

ARR = Monthly Recurring Revenue (MRR) \u00d7 12<\/strong><\/p>\n

For example, a start-up generates 10,000 euros in monthly recurring revenue.<\/p>\n

\u20ac10,000 \u00d7 12 = \u20ac120,000 ARR<\/strong><\/p>\n

This brings the annualised value of his current subscriptions to 120,000 euros.<\/p>\n

However, this figure does not automatically represent the actual turnover achieved in a financial year. Rather, it describes the current level of recurring turnover on an annual basis.<\/p>\n

In the case of contracts that are exclusively annual or multi-year, companies may alternatively convert the respective contract values to an annual basis. It is therefore important to establish a consistent method for these calculations.<\/p>\n

 <\/p>\n

What do New ARR, Expansion ARR and Total ARR mean?<\/h2>\n

To gain a better understanding of the trend in recurring revenue, companies use a number of key performance indicators.<\/p>\n\n\n\n\n\n\n\n\n
Key figure<\/strong><\/th>\nMeaning<\/strong><\/th>\n<\/tr>\n
New ARR<\/strong><\/td>\nAdditional annual recurring revenue from newly acquired paying customers<\/td>\n<\/tr>\n
ARR expansion<\/strong><\/td>\nAdditional annual recurring revenue from upgrades or extensions to existing customer contracts<\/td>\n<\/tr>\n
Churned ARR<\/strong><\/td>\nLoss of annual recurring revenue due to cancellations<\/td>\n<\/tr>\n
Contraction ARR<\/strong><\/td>\nDecline due to contract reductions or downgrades<\/td>\n<\/tr>\n
Total ARR<\/strong><\/td>\nTotal annualised recurring revenue from all current contracts included in the analysis<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

This distinction helps start-ups to analyse the drivers of their revenue growth in greater detail.<\/p>\n

This is because new customers boost turnover in a different way to extensions of existing contracts.<\/p>\n

 <\/p>\n

Example: ARR growth of a B2B SaaS start-up<\/h2>\n

A start-up is developing software to monitor industrial production facilities.<\/p>\n

At the start of a quarter, the company has a total ARR of 120,000 euros.<\/p>\n

During the quarter, it acquired new customers with an additional annual contract value of 24,000 euros.<\/p>\n

In addition, existing customers are increasing their subscriptions by a total of 12,000 euros per year. At the same time, one company is cancelling its contract, which is worth 6,000 euros a year.<\/p>\n

The calculation is as follows:<\/p>\n\n\n\n\n\n\n\n\n
Position<\/strong><\/th>\nAmount<\/strong><\/th>\n<\/tr>\n
ARR at the start of the quarter<\/td>\n120.000 \u20ac<\/td>\n<\/tr>\n
New ARR<\/td>\n+24.000 \u20ac<\/td>\n<\/tr>\n
ARR expansion<\/td>\n+12.000 \u20ac<\/td>\n<\/tr>\n
Churned ARR<\/td>\n\u2212\u20ac6,000<\/td>\n<\/tr>\n
Total ARR at the end of the quarter<\/strong><\/td>\n150.000 \u20ac<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Annualised recurring revenue has therefore risen by 30,000 euros, or 25 %.<\/p>\n

This example shows how important it is to look not only at the overall figure, but also at the individual changes.<\/p>\n

 <\/p>\n

Why is ARR important for start-ups?<\/h2>\n

This metric helps founders to assess the development of subscription-based business models.<\/p>\n

It is particularly relevant for:<\/p>\n