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Annual Recurring Revenue (ARR) Calculator
What is Annual Recurring Revenue (ARR)?
Annual Recurring Revenue (ARR) is the total revenue that you generate from subscription-based customers in a year. It is a key metric that can help you understand and plan future growth, evaluate the impact of various pricing strategies, and create strategies for customer retention.
Relevant channels: Subscription-based businesses, SaaS
How to use this ARR calculator
To calculate your ARR, enter your total number of customers and the monthly average revenue per user (ARPU). The calculator will instantly provide an estimate of your ARR.
ARR formula
ARR = Number of Customers × ARPU x 12
Understanding the ARR result
The ideal ARR will depend on your targets, industry, scale of business, etc.
- A higher ARR indicates a strong and growing customer base. However, you should always compare this with the costs involved to ensure you are earning a profit.
- A lower ARR may signal that you need to work on acquiring more customers or improving your subscription pricing model.
When to calculate ARR
You should calculate your ARR in the following scenarios:
When preparing for business forecasts and financial planning
To evaluate the impact of new customer acquisition efforts
When adjusting pricing strategies or subscription models
To measure the growth of your subscription business over time
When seeking investment or presenting financial reports to stakeholders
How to calculate ARR (with example)
Let’s say your subscription-based business has 100 customers, and your ARPU is $20 per month. The formula to calculate ARR is:
**ARR = Number of Customers × ARPU x 12 **
ARR = 100 × $20 x 12 = $24,000
In this case, your annual recurring revenue is $24,000.
How to improve your ARR
Increase the ARPU by introducing higher-priced subscription plans or offering value-added services.
Improve customer retention by providing excellent service and reducing churn rates.
Expand your customer base through targeted marketing and sales efforts.
Regularly update your product offerings to ensure customer satisfaction and continued subscription renewals.
Analyze customer feedback to identify areas of improvement and keep your offerings competitive in the market.
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