What is ARR?
Annual Recurring Revenue
TL;DR
ARR (Annual Recurring Revenue) is the predictable yearly revenue from subscriptions, normalized to a 12-month period.
Example
A SaaS company with these subscriptions:
- 100 customers paying 500 kr/month = 600,000 kr ARR
- 50 customers paying 2,000 kr/month = 1,200,000 kr ARR
- 20 customers paying 10,000 kr/month = 2,400,000 kr ARR
- Total ARR: 4,200,000 kr
ARR includes:
- Monthly subscriptions × 12
- Annual subscriptions at face value
- Multi-year contracts (annualized)
ARR does NOT include:
- One-time fees (setup, implementation)
- Usage-based overages (unpredictable)
- Professional services revenue
- Hardware sales
Explanation
ARR Components
New ARR: Revenue from brand new customers Expansion ARR: Existing customers upgrading or adding users Churned ARR: Revenue lost from customers leaving Contraction ARR: Existing customers downgrading
Net New ARR = New + Expansion - Churned - Contraction
This tells you if you're actually growing.
ARR vs Revenue
ARR is not the same as total revenue:
- A customer paying 120,000 kr upfront for 2 years = 60,000 kr ARR (not 120,000 kr)
- ARR normalizes everything to annual
- It's meant to show sustainable, predictable income
Growth Benchmarks
| Stage | Good ARR Growth |
|---|---|
| 0-1M kr ARR | 300%+ |
| 1-5M kr ARR | 200%+ |
| 5-20M kr ARR | 100%+ |
| 20M+ kr ARR | 50%+ |
These are ambitious but achievable for strong companies.
Why It Matters
For Business Owners
ARR is the North Star metric for SaaS. It's the single number that best represents the size and health of a subscription business.
Investors value companies on ARR multiples. A SaaS company might be valued at 5-15x ARR depending on growth rate and market. 10M kr ARR could mean a 50-150M kr valuation.
ARR enables planning. Because it's predictable, you can budget with confidence, hire ahead of revenue, and plan for the year.
ARR growth rate matters more than absolute number. A company growing ARR 100% annually is usually worth more than one with higher ARR growing 20%.
Why Not Just Use Revenue?
Regular revenue fluctuates. You might have a big month from one-time deals, then a slow month. ARR smooths this out and shows what your business reliably generates.
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