What Is Annual Recurring Revenue (ARR)?
Annual recurring revenue (ARR) is the annualised value of all subscription and recurring contracts active at a point in time. For a SaaS business, ARR is calculated by multiplying monthly recurring revenue (MRR) by 12, or by summing the annualised contract values of all active subscriptions.
ARR = MRR × 12
ARR excludes one-off project fees, professional services revenue, usage-based revenue above the committed minimum, and other non-recurring income streams. This exclusion is deliberate: ARR is designed to capture the predictable, contractually committed revenue base that buyers are actually paying for in a subscription business acquisition.
ARR in M&A Valuations
ARR is the denominator in the most important multiple for SaaS company valuations: the ARR multiple (also called the EV/ARR multiple). A SaaS business valued at US$20 million with US$4 million in ARR trades at 5x ARR.
ARR multiples in APAC private markets typically range from 2-8x depending on growth rate, net revenue retention (NRR), gross margin, and customer concentration. Businesses growing ARR above 50% per year with NRR above 110% and gross margins above 75% command the highest multiples.
| ARR Growth Rate | Typical Private Market Multiple |
|---|---|
| 100%+ | 8-15x ARR |
| 50-100% | 5-10x ARR |
| 30-50% | 3-6x ARR |
| 15-30% | 2-4x ARR |
| Sub-15% | EBITDA-based |
ARR Bridge Analysis
Buyers and investors expect to see an ARR bridge — a reconciliation showing how ARR moved from one period to another:
- Opening ARR — ARR at the start of the period
- New ARR — ARR added from new customers
- Expansion ARR — ARR added from upgrades and upsells to existing customers
- Contraction ARR — ARR lost from downgrades by existing customers
- Churned ARR — ARR lost from customers who cancelled entirely
- Closing ARR — Opening + New + Expansion − Contraction − Churned
A clean ARR bridge is one of the first documents requested in SaaS due diligence. The ratio of expansion ARR to churned ARR tells buyers whether existing customers are finding increasing value in the product — a key indicator of product-market fit.
ARR vs MRR vs Revenue
- ARR — annualised committed recurring revenue; the primary valuation metric
- MRR (monthly recurring revenue) — ARR ÷ 12; used for monthly reporting cadence
- Revenue — total recognised revenue including one-off items; always higher than ARR for businesses with non-recurring components
GAAP/IFRS revenue recognition rules can cause reported revenue to differ from ARR. For businesses with annual prepayment contracts, revenue is recognised evenly over the contract term; the full contract value may show as ARR but is recognised as revenue over 12 months. Buyers focus on ARR as the forward-looking metric and reported revenue as the historical accounting metric.
Net Revenue Retention and Its Relationship to ARR
Net revenue retention (NRR) measures what happens to ARR from a cohort of existing customers over time. NRR above 100% means existing customers are expanding faster than they churn. For M&A purposes, NRR above 110% is considered excellent and supports premium ARR multiples, because it means the business can grow ARR without any new customer acquisition.
NRR = (Closing ARR from existing customers ÷ Opening ARR) × 100
ARR and Amafi Advisory
Amafi advises technology and SaaS company founders across Asia Pacific on sell-side M&A transactions. Understanding how buyers interpret your ARR, NRR, and churn metrics is fundamental to achieving the right valuation. Amafi charges a 2% success fee capped at US$500,000 — no retainer, no fees unless a deal completes.