Annual Recurring Revenue (ARR)

ARR = Number of active subscribers x Average annual subscription price

So if you have 300 subscribers each paying $450 per year, your ARR is $135,000.

For a more complete picture, especially as your subscriber base grows, you can adjust for upgrades, downgrades, and cancellations using the comprehensive formula:

ARR = New ARR + Expansion ARR (upgrades and upsells) minus Contraction ARR (downgrades) minus Churned ARR (cancellations)

This version reflects what is actually happening across your subscriber base, not just a static snapshot.

Why is ARR important for ecommerce subscriptions?

ARR tells you the size and stability of your recurring revenue at any point in time. For Shopify merchants running subscription models, it is more useful than total revenue because it filters out noise and shows you what you can genuinely rely on month after month.

ARR assumes your subscriber base stays constant, which is why pairing it with your churn rate gives a far more honest view of where your revenue is actually heading. A growing ARR with a rising churn rate is a warning sign, not a success story. Paired with customer lifetime value, ARR gives you a complete picture of both your current revenue health and the long-term value each subscriber brings to your business.

ARR also matters beyond your internal planning. Investors and potential acquirers use ARR as a primary indicator of subscription business health. A strong, growing ARR signals predictable income and customer retention, which directly affects how your business is valued.

ARR vs MRR: which should you track?

Both measure recurring revenue but serve different purposes. MRR is your month-to-month operating metric, useful for spotting trends quickly, identifying churn early, and making fast decisions. ARR is your annual stability metric, useful for investor reporting, long-term planning, and benchmarking year-on-year growth.

Most subscription merchants track both. Use MRR to run the business day to day. Use ARR to communicate the big picture.

Example of Annual Recurring Revenue (ARR)

You run a coffee subscription store with 500 active subscribers, each paying $20 per month.

500 subscribers x $20 per month x 12 months = $120,000 ARR

That $120,000 is your baseline. It tells you the annual value of your current subscriber base assuming no cancellations, no upgrades, and no new subscribers. From there, any growth in subscribers or plan upgrades increases your ARR, while cancellations and downgrades reduce it.

Driftcharge Tip

ARR is a useful number but it is a lagging indicator. By the time your ARR drops, churn has already been happening. Track your churn rate and LTV alongside ARR so you catch problems early, before they show up in your annual revenue figure.

Ganesh Pawar

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Ganesh Pawar is the founder of Driftcharge, a subscription management app designed to help Shopify merchants streamline and scale their subscription businesses. With a deep focus on solving real-world pain points—like legacy account page support, flexible subscription options, and advanced analytics—Ganesh is passionate about building tools that drive growth and retention.