SaaS Metrics Encyclopedia
ARR Growth, or Annual Recurring Revenue Growth, is a key performance indicator that measures the percentage increase in a company's recurring revenue over a specific period, usually on an annual basis. It provides insights into the company's ability to expand its customer base, increase subscription prices, or upsell existing customers, contributing to overall revenue growth.
Measuring ARR Growth is crucial for understanding the financial health and sustainability of a Software as a Service (SaaS) business. It serves as a comprehensive indicator of how well a company is retaining existing customers, acquiring new ones, and optimizing its pricing strategy. A positive ARR Growth signifies the scalability and long-term viability of the business model, attracting investors and indicating the company's competitive position in the market.
ARR Growth is calculated by taking the difference between the current ARR and the previous ARR, dividing that by the previous ARR, and then multiplying by 100 to express the result as a percentage. The formula is as follows:
(Current ARR − Previous ARR) / Previous ARR) × 100
For example, if a company had a previous ARR of $1 million and the current ARR is $1.5 million, the ARR Growth would be (1.5−1) / 1 × 100 = 50%.
To improve ARR Growth, a SaaS company can focus on several strategic initiatives.
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