What is ARR (Annual Recurring Revenue)?

ARR is the standard metric for comparing SaaS business scale and momentum. Investors, acquirers, and management teams use it to benchmark companies regardless of when contracts renew or what mix of monthly and annual plans a company sells. A business with $100k MRR has $1.2M ARR.

ARR is a growth metric, not a cash-flow metric. A SaaS company that signs a large annual contract books the ARR immediately but receives cash either upfront (creating deferred revenue) or spread over 12 months. Conflating ARR with cash collected is one of the more common mistakes in early-stage SaaS finance. For AR purposes, the relevant question is how quickly invoices tied to those ARR bookings actually get paid — which is where DSO remains relevant even for subscription businesses.