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ARR: how to think about Annual Recurring Revenue

ARR is a useful snapshot, but it's easy to misuse. Learn what ARR is (and isn't), and how it differs from bookings and cash.

Updated 2026-01-05

Definition

ARR (Annual Recurring Revenue) is MRR annualized (MRR * 12). It's an annualized run-rate snapshot, not a promise of revenue.

ARR vs bookings vs cash

  • ARR measures recurring run-rate; bookings measure contracted value; cash measures receipts.
  • For annual prepay, cash can be high while ARR grows more steadily.
  • Use ARR for comparability across SaaS businesses; use cash for runway planning.

Pitfalls

  • Counting services revenue as ARR inflates true recurring run-rate.
  • Ignoring churn/retention when annualizing short-term MRR spikes.

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