Question 1

What is ARR and how is it calculated?

Accepted Answer

ARR (Annual Recurring Revenue) = MRR × 12. It normalizes monthly subscription revenue to an annual figure used for valuation, fundraising, and investor reporting. ARR includes committed recurring revenue from annual contracts, monthly subscriptions annualized, and expansion ARR. It excludes one-time setup fees and non-recurring revenue.

Question 2

What ARR milestones matter most for fundraising?

Accepted Answer

Key ARR milestones: $1M ARR — Series A territory, validates product-market fit. $3M ARR — strong Series A/B candidate. $10M ARR — Series B comfort zone. $30M ARR — Series C territory. Growth rate matters as much as absolute ARR: at $1M ARR, growing 3x annually is more fundable than $5M ARR growing 30% annually.

Question 3

What's the difference between ARR and ACV?

Accepted Answer

ARR (Annual Recurring Revenue) is a portfolio metric — the total annual value of all active subscriptions. ACV (Annual Contract Value) is a deal-level metric — the value of a single customer contract per year. ARR = sum of all ACVs. ACV is used by sales teams for pipeline metrics; ARR is used by founders for company health metrics.

Question 4

How do I calculate ARR from multi-year contracts?

Accepted Answer

For multi-year contracts, only count the annual portion as ARR. A $300K 3-year deal = $100K ARR, not $300K. TCV (Total Contract Value) captures the full deal. Investors want ARR to reflect normalized annual run-rate, so don't inflate ARR with prepaid multi-year deals.

ARR Calculator — Annual Recurring Revenue for SaaS

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