ARR (Annual Recurring Revenue) is MRR expressed on a yearly basis, and it’s the number most commonly used when discussing a SaaS company’s overall scale, especially in fundraising or acquisition conversations — “we’re a $10 million ARR company” is a much more common way founders describe size than the monthly figure. ARR is a run-rate figure, meaning it reflects what current recurring revenue would total over a year if nothing changed, not revenue actually collected over the past twelve months.

ARR matters heavily in SaaS valuations because investors and acquirers often price recurring-revenue software companies as a multiple of ARR, rather than using traditional profit-based valuation methods used for other kinds of businesses — a reflection of how predictable and durable recurring revenue is seen as, compared to one-time sales.

Like MRR, ARR should only include genuinely recurring subscription revenue; mixing in one-time implementation fees or services revenue inflates the figure and misrepresents the durability investors are actually trying to measure.

🇵🇭 Philippine Example

Sprout Solutions was reported to be anticipating crossing $10 million in annual recurring revenue by the second quarter of 2023, and has since gone on to raise further funding while pursuing regional expansion — a real, publicly reported ARR milestone for a Philippine-founded SaaS company.

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