Annual recurring revenue

ARR is the run rate value of subscriptions in force, annualised. It excludes professional services, implementation fees and anything else non recurring, so it measures the contracted base rather than the reported top line.

It is used because reported revenue lags reality under subscription accounting. A contract signed in month eleven contributes almost nothing to the current year's revenue but adds fully to ARR, so ARR shows the trajectory the income statement will follow.

It is a management measure, not an audited one, so definitions vary. What counts as recurring, how multi year contracts and usage based pricing are treated, and whether churned customers are removed promptly are all worth checking before comparing two companies.

The measures that matter alongside it are net revenue retention, which says whether the existing base is growing on its own, and CAC payback, which says what it costs to add to it.