What is it: ARR measures the expected revenue from products and services sold with contracts lasting at least 12 months. It is commonly used by subscription-based businesses, such as software as a service (SaaS) companies, to track revenue.
Why is it necessary: ARR is an essential metric for subscription-based businesses. It can help businesses to track their revenue growth and to forecast their future revenue. ARR can also be used to set pricing for subscription-based products or services.
Formulas: Yes, there is a formula associated with ARR. The formula is as follows:
ARR = (Total contract value) / (Number of years in the contract) * (Number of months per year)
How can this be used for startups: Startups can use ARR to track their growth and forecast future revenue. ARR can also be used to set pricing for subscription-based products or services.