ARR formula
Annual recurring revenue is the yearly value of your recurring subscription contracts, normalised to 12 months. For monthly billing it is simply MRR × 12; for annual contracts it is the annual contract value of each active subscription. Companies define it themselves in their filings: Amplitude’s 10-K defines ARR as the annual recurring revenue of subscription agreements, including certain services under subscription terms.[1]
Get MRR plan by plan with the MRR calculator.
The ARR bridge
| Movement | ARR |
|---|---|
| Starting ARR | $1,000,000 |
| + New ARR | $300,000 |
| + Expansion ARR | $150,000 |
| − Contraction ARR | −$50,000 |
| − Churned ARR | −$100,000 |
| = Ending ARR | $1,300,000 |
- Growth30%
- Net revenue retention100%
- Gross revenue retention85%
- Ending MRR$108,333
The bridge shows where growth comes from. Here churn and contraction cost $150,000, exactly offset by expansion, so net revenue retention is 100% and all growth came from new customers.
Net and gross revenue retention
Net revenue retention (NRR) is the ARR you keep from existing customers including upgrades; gross revenue retention (GRR) excludes upgrades, so it can never exceed 100%. CrowdStrike’s 10-K describes its dollar-based net retention rate as current-period ARR from a customer cohort divided by that cohort’s prior-period ARR, including expansion and net of contraction or churn.[2] NRR above 100% means the existing base grows on its own. Customer-count churn is a separate measure; see the churn rate calculator.
ARR mistakes
- Counting one-time revenue. Implementation fees and one-off services are not recurring; they inflate ARR.
- Annualising a single good month. Usage spikes × 12 is a run rate, not ARR. Label it if you use it.
- Booking signed but not started contracts. Decide whether ARR starts at signature or go-live and keep it consistent.
Retained revenue is cheaper than replacement revenue,[3] so the expansion and churn lines usually deserve as much attention as new ARR. Compare new ARR with what it cost using the CAC calculator.
Frequently asked questions
What is the formula for ARR?
ARR = MRR × 12, or the sum of the annualised value of all active recurring contracts.
How do you calculate net revenue retention?
(Starting ARR + expansion − contraction − churn) ÷ starting ARR, for the same cohort of customers.
What is the difference between NRR and GRR?
NRR includes expansion and can exceed 100%; GRR excludes expansion and is capped at 100%.
Is ARR the same as annual revenue?
No. Annual revenue includes one-time and usage revenue recognised in the year; ARR is the recurring run rate at a point in time.