ARR / MRR (Annual / Monthly Recurring Revenue)

ARR refers to the annualised recurring revenue of a subscription-based business model, typically in the SaaS sector. On a monthly basis, the same logic is reported as MRR (monthly recurring revenue) and usually broken down by driver: new, expansion, contraction and churned MRR. One-off revenue, set-up or implementation fees and non-contractual revenue are, by definition, not part of ARR/MRR.

In transaction practice, software companies are frequently valued based on ARR multiples, with growth, net revenue retention, gross margin and churn having a decisive influence on the level of the valuation. See also our article on the valuation of software companies.