ARR (Annual Recurring Revenue)
Definition
ARR is the annualized value of a subscription business's recurring revenue under contract — conceptually, the run-rate revenue if the current subscription base persisted for a year. It is typically computed as monthly recurring revenue (MRR) × 12, or as the annualized value of active subscription contracts, excluding one-time items like professional services and non-recurring fees.
ARR is a non-GAAP operating metric, not GAAP revenue: it ignores revenue-recognition timing and is forward-looking, which is why SaaS companies and their investors treat it as the cleanest gauge of scale and momentum. Definitions vary — some companies annualize the exit month, others include committed-but-not-live contracts — so comparability requires reading the fine print.
SaaS valuation frequently keys off EV/ARR (or EV/NTM revenue) multiples, especially for unprofitable, high-growth companies.
Why interviewers ask
TMT interviews assume SaaS fluency: what ARR is, why it differs from GAAP revenue, and how EV/ARR multiples are used when EBITDA is negative. It pairs with net revenue retention and Rule of 40 as the standard software-diligence toolkit interviewers probe.
Related terms
Interviews don't test definitions — they test recall under pressure.
Drill 1,500+ real questions with spaced repetition. Free to start — 10 reps a day on the house.