What is ARR?
Annual recurring revenue (ARR) is the yearly value of the recurring revenue customers are contractually committed to, measured at a point in time: subscriptions plus any committed usage minimums, annualised. It leaves out one-off fees, services and usage above a commitment, so it is a measure of the contracted base, not of the year's revenue.
How ARR is calculated
Take the month's committed recurring revenue, subscriptions and committed usage minimums, and multiply by 12. Usage above a commitment, implementation and other one-off fees stay out.
ARR = Committed recurring revenue for the month × 12
A worked example
In the illustrative example workspace, Gloaming Fescue Inc's committed recurring revenue for June 2026 is its subscriptions plus its customers' committed usage minimums.
| Operation | Line | Figure |
|---|---|---|
| Subscriptions, June | $535,000 | |
| + | Committed usage minimums, June | $166,700 |
| = | Committed recurring revenue for the month | $701,700 |
| × | Months in a year | 12 |
| = | ARR at 30 June | $8.42M |
Gadwall Fustian Inc, the largest metered customer, bills $218,138.34 for June and adds nothing to ARR, because none of its usage is committed.
Common mistakes
Counting implementation and services
One-off fees are revenue, not recurring revenue. Corncrake Dado Inc's $410,000 milestone rollout adds to revenue as each milestone is accepted, and nothing to ARR.Including usage above the commitment
Overage changes month to month, so nobody committed to it. Fanlight Betony Inc's $100,000 annual commitment counts; the $212,151.20 of overage billed above it does not.Mixing contracted and live ARR
Some teams count a signed contract from signature, others from its start date. Pick one, say which, and keep it from one quarter to the next.
How Verlix handles it
Verlix reads ARR from the contracts themselves, so a committed minimum counts and the usage above it does not. The ARR and MRR waterfall, deferred revenue and retention reports all come off that same record.
SaaS financial reportingRelated terms
ARR waterfall
How ARR moved over a period: new, expansion, contraction and churn.Net revenue retention
What last year's customers are worth now, as a share of what they were worth then.Usage-based billing
Charging for what a customer consumed, rated on its contract's own price table.