ARR (Annual recurring revenue)

What is ARR?

ARR, or Annual Recurring Revenue, is the total predictable revenue a business expects to generate from active subscriptions over a 12-month period. It’s a crucial metric for any recurring revenue business, especially in ecommerce and SaaS, because it helps track long-term revenue performance.

Unlike one-time purchases, ARR focuses only on recurring income, giving you a stable view of future revenue and helping with planning, budgeting, and forecasting.

How is ARR calculated?

Wondering how ARR is calculated? Use this formula:

ARR = Monthly Recurring Revenue (MRR) × 12

Or, for annual contracts:
ARR = Number of active customers × Average annual subscription price

For example, if you have 300 customers paying $200/year, your ARR is $60,000. If you’re billing monthly and earning $5,000 in MRR, your ARR would be $60,000 as well.

What’s the difference between ARR and MRR?

Both ARR and MRR track recurring revenue, but they’re measured differently:

• ARR looks at yearly revenue
• MRR measures monthly revenue
  ARR provides a big-picture view, while MRR is more granular and helps spot short-term changes.

Example of ARR in ecommerce

A Shopify store offering a $120/year subscription box with 1,000 active customers would have an ARR of $120,000. This helps the merchant estimate annual performance and evaluate growth.

Driftcharge Tip

Track both ARR and MRR to get a full view of your subscription business’s health. Driftcharge automatically calculates ARR based on your current subscriber data and helps forecast future growth.

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.