What is Annual Recurring Revenue (ARR)?
Short Answer
ARR is Monthly Recurring Revenue multiplied by 12 — the annualised predictable revenue from active subscriptions, the primary valuation metric for growth-stage SaaS companies.
Full Explanation
ARR = MRR × 12. If a company has £65K MRR, its ARR is £780K. ARR is the metric used in SaaS valuation multiples: a company with £1M ARR valued at 10x would have an implied valuation of £10M. Growth-stage SaaS companies (Series A-C) are typically valued based on forward ARR multiples (current ARR or next year's projected ARR) ranging from 5-15x depending on growth rate, churn, and competitive position. This makes ARR growth the primary driver of valuation in high-growth SaaS. A company growing from £1M to £2M ARR year-over-year (100% growth) might command a 12-15x forward ARR multiple, while one growing 30% might command only 8-10x. The implication: achieving 20-30% year-over-year growth is often more valuable than achieving £10M ARR with 5% growth. This explains why growth-stage SaaS companies often sacrifice near-term profitability to maintain growth momentum — they are optimising for valuation, not earnings.
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