Annual recurring revenue (ARR) is the predictable subscription revenue a business expects over a year, calculated as monthly recurring revenue (MRR) times 12. It counts only recurring contract value, so one-off fees, setup charges, and usage overages that do not repeat stay out of the number. ARR is the cleanest way to size a subscription business and the figure most investors anchor on, but the absolute dollar amount says little on its own. What matters is how fast it grows and how much of it survives renewal.
How to calculate ARR (formula and example)
Take the calculator defaults: $120,000 in MRR annualizes to $1,440,000 ARR. If you closed last year at $900,000 ARR, your year-over-year growth is (1,440,000 - 900,000) / 900,000 x 100, which is 60%. The widget above shows the same two outputs: $1,440,000 ARR and 60% YoY growth. Change either input and both update live.
Two things trip people up. First, build ARR off contracted recurring revenue, not booked revenue: a signed annual deal that has not started yet is bookings, not ARR. Second, net out churn and contraction. If you added $200,000 in new ARR but lost $80,000 to cancellations and downgrades, your net new ARR is $120,000, and that is what your growth rate should reflect.
Annual recurring revenue (ARR) benchmarks by industry
Because a raw ARR dollar figure has no "good" value across industries, the benchmark below grades year-over-year ARR growth, which is what actually varies by sector and stage. Median is the middle of the pack, good is roughly the top third, and great is roughly the top decile.
| Industry | Median | Good | Great |
|---|---|---|---|
| SaaS | 30% | 60% | 100% |
| Fintech | 35% | 70% | 120% |
| Dev Tools | 40% | 80% | 140% |
| AI/ML | 60% | 120% | 200% |
| E-commerce | 25% | 50% | 90% |
| Healthtech | 28% | 55% | 95% |
| Martech | 30% | 60% | 100% |
The SaaS row tracks SaaS Capital's 2025 private B2B survey, which puts the median private SaaS company at about 25% YoY, down from 30% in 2023. The good and great bands come from the 2025 High Alpha and OpenView SaaS Benchmarks Report, where median growth runs hot early and cools fast: about 75% under $1M ARR, 40% at $1-5M, and 30% at $5-20M, with top-quartile sub-$1M startups back up near 300%. Read your own number against your ARR stage, not the blended median.
AI/ML sits a tier above everyone because AI-native companies in the same report grow 90% to 110% at the median through $20M ARR. Fintech and dev tools clear the SaaS line for different reasons: payments-embedded fintech keeps net revenue retention above 110% so growth compounds on a stickier base, and developer tools convert technical buyers fast through self-serve. E-commerce and healthtech grow slower, with healthtech taking a 2025 hit as health systems consolidated and churn rose, per ChartMogul and Maxio's 2025 vertical data. For mid-stage context, ICONIQ Growth's 2025 cohort shows top-quartile $25-100M companies growing about 93%, so "great" stays steep well past early traction.
How to grow ARR
Net new ARR has three sources: new logos, expansion from existing accounts, and the churn that claws it back. Past Series A, expansion usually does the heavy lifting. In the 2025 benchmarks, companies above $50M ARR pulled roughly 60% of new ARR from their existing base, so the fastest lever is often net revenue retention, not top-of-funnel.
- Lift net revenue retention. Seat growth, usage-based tiers, and add-ons let accounts spend more without a new sale. NRR above 110% means the base grows even before you add a single logo.
- Cut gross churn. Every point of revenue churn is ARR you have to re-earn before you grow. Fix the activation and onboarding gaps that cause early cancellations first, since those cohorts never reach expansion.
- Move annual. Annual contracts lock in 12 months of ARR and lower the churn rate versus month-to-month plans. A modest annual discount usually pays for itself in retained revenue.
- Raise ARPA on new deals. Packaging and price changes compound: a higher entry price on new logos raises ARR per account without touching your installed base.
Related calculators
- MRR calculator: the monthly figure ARR annualizes from, with net new MRR and MoM growth.
- Net revenue retention calculator: see how expansion offsets churn across your existing base.
- Churn rate calculator: the leak that decides how much ARR you keep at renewal.
- Customer lifetime value calculator: what each ARR dollar is worth in gross profit over the relationship.
Frequently asked questions
What is a good annual recurring revenue (ARR) growth rate?
It depends on your stage. The median private SaaS company grows ARR about 25% year-over-year, per SaaS Capital's 2025 survey, but early-stage companies should be much faster: median growth runs near 75% under $1M ARR and 40% at $1-5M in the 2025 High Alpha and OpenView benchmarks. Top-quartile startups under $1M grow close to 300%, and AI-native companies hold 90% or more well into the $20M range. Read your growth against your ARR band, not one blended number.
How is ARR calculated?
ARR equals monthly recurring revenue times 12. Count only recurring subscription revenue and exclude one-off fees, setup charges, and non-repeating usage. For year-over-year growth, subtract last year's ARR from this year's, divide by last year's ARR, and multiply by 100.
What is the difference between ARR and MRR?
MRR is monthly recurring revenue and ARR is the annual version, equal to MRR times 12. Early-stage and self-serve teams watch MRR because it moves week to week, while enterprise and investor reporting leans on ARR because most contracts are annual. They measure the same revenue at different time scales.
What is the difference between ARR and revenue?
ARR counts only predictable recurring subscription revenue. Total (GAAP) revenue also includes one-time fees, professional services, and variable usage that does not repeat. ARR is a forward-looking run-rate, while recognized revenue reports what you actually earned in a period, so the two rarely match.
