Definition
Last reviewed June 7, 2026
ARR includes only recurring contractual revenue: subscriptions, recurring services, recurring license fees. It excludes one-time setup fees, professional services not part of the subscription, and ad-hoc revenue. The discipline matters because mixing recurring and non-recurring revenue makes the growth rate look artificially good and undermines the predictability that makes ARR valuable in the first place.
ARR is most useful when broken into components: New ARR (from new logos), Expansion ARR (from existing customers buying more), Churned ARR (from cancellations), and Contraction ARR (from customers downgrading). Net New ARR equals New plus Expansion minus Churn minus Contraction. That breakdown tells you whether growth is coming from acquisition, retention, or expansion, and which lever is doing the work.
INSIDEA's customers usually build ARR as a calculation property on the Company record in HubSpot, summing all active subscriptions associated with that company. The report then breaks down ARR by ICP segment, cohort, and product line. The dashboard is not just for the board, it is the operational view for customer success, expansion sales, and finance, all reading from the same number.
FAQs
ARR is MRR × 12 (or the sum of annualized subscriptions). They measure the same thing on different time scales. MRR is more responsive to monthly changes and easier for shorter cycles. ARR is what investors and boards usually want because it tracks the annual rhythm of the business and makes year-over-year comparisons natural.
ARR is recurring contractual subscription revenue only. It excludes one-time setup fees, ad-hoc professional services, and any non-recurring revenue. Mixing the two inflates the headline growth rate and breaks the predictability that makes ARR meaningful. Strict definition matters more than the number being big.
Net New ARR equals New ARR (from new logos) plus Expansion ARR (existing customers buying more) minus Churned ARR (cancellations) minus Contraction ARR (downgrades). It is the cleanest single measure of whether the business is growing or shrinking after accounting for both acquisition and retention.
We build ARR as a calculation property on the Company record that sums associated subscription deals. Reports segment ARR by ICP, cohort, product line, and customer success owner. The same number flows to the board, customer success, and finance, so everyone is reading from the same source of truth.
Related terms
Monthly Recurring Revenue (MRR) is the predictable, normalised revenue a SaaS business expects each month from its subscription customers. It is calculated by summing each active subscription's monthly fee, with annual contracts divided by 12. MRR is the single most important metric in subscription-software finance because it predicts ARR, growth rate, and runway without requiring the volatility of one-off bookings to interpret.
Net Revenue Retention (NRR) measures how much revenue a SaaS business retains from a cohort of customers over a period, including expansion, contraction, and churn. NRR is calculated as: (Starting ARR + Expansion - Contraction - Churn) ÷ Starting ARR. NRR over 100% means the cohort grew without new logos. Public SaaS leaders run 110-130% NRR and it is one of the strongest predictors of long-term value.
Churn Rate is the percentage of customers (or revenue) lost over a period, expressed monthly or annually. Logo Churn measures customers lost. Revenue Churn measures ARR lost. Both matter, and they often tell different stories: a business can have low logo churn but high revenue churn if it loses one big customer, or the opposite if it loses many small ones.
Customer Acquisition Cost (CAC) is the total sales and marketing spend required to win a new customer, divided by the number of new customers acquired in the period. It is the cleanest single measure of acquisition efficiency: are you spending more or less than the next dollar of customer revenue is worth.
Customer Lifetime Value (LTV) is the total gross profit a customer is expected to deliver over the length of the relationship. For subscription businesses, the standard formula is: (average revenue per customer × gross margin) ÷ customer churn rate. LTV is the value side of the LTV-to-CAC ratio, which is the single most-cited measure of subscription business health.
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