Subscription and billing software has revolutionized the way businesses manage their finances and relationships with customers. One of the key metrics that businesses use to measure their success is annual recurring revenue (ARR). ARR is a useful metric because it provides a predictable view of a company’s revenue stream over the course of a year. But how is ARR calculated, and how can businesses use subscription and billing software to track it?
ARR is simply the total amount of revenue that a business expects to generate from its subscription-based services over the course of a year. To calculate ARR, businesses multiply the monthly recurring revenue (MRR) by 12. MRR is the amount of revenue generated by a business’s subscription-based services on a monthly basis. This includes revenue generated from existing customers as well as revenue generated from new customers who have signed up during the month.
For example, let’s say a SaaS company generates $10,000 in MRR. To calculate its ARR, the company would multiply $10,000 by 12, resulting in an ARR of $120,000. This means that the company expects to generate $120,000 in revenue from its subscription-based services over the course of the year.
Subscription and billing software can be incredibly helpful in tracking and managing ARR. By automating many of the tasks involved in managing subscriptions and billing, this software can help businesses more accurately track their MRR, which in turn helps them calculate their ARR more effectively.
