ARR Calculator

ARR formulas, with Excel and Google Sheets versions

Every ARR number is one of these. Examples use made-up numbers. The cell formulas work the same in Excel and Google Sheets. For the definition and the four movement components on their own, see the ARR formula.

In the bridge rows, B2 is starting ARR, C2 to E2 are the three gain lines (new customer, new product, increased product) and F2 to H2 are the three loss lines. I2 holds net new ARR and J2 a monthly growth rate. Wrap any division in IFERROR, as in =IFERROR(I2/B2,""), so a blank starting ARR shows an empty cell in place of #DIV/0!.

How to calculate ARR, step by step

1. Pull active contracts only. Start from contracts that are live today. A deal that is signed but not yet live belongs in committed ARR (CARR), not ARR.
2. Strip out what does not recur. Remove implementation, onboarding, training, project services, hardware and usage above any contracted minimum.
3. Annualize each contract. Monthly fee x 12. Annual fee as is, whether it was billed monthly or prepaid. Multi-year subscription value divided by the term. For a ramp deal, use this year's rate.
4. Add committed usage floors. Count the contracted minimum and nothing above it.
5. Sum the contracts. That total is ARR. Divide by 12 if you also need MRR.
6. Reconcile it to last period. Starting ARR plus new, expansion, contraction and churn must equal the number you just built. If it does not tie, a movement is missing or misclassified.

What counts in ARR and what does not

The test from ORM's guide to what counts as recurring revenue: the contract continues without a new purchase decision, and it bills a predictable amount on a fixed interval. If nobody signs anything new, will the same amount bill again next year? If not, it stays out.

Overage is the gray zone. The strict rule keeps it out. Some teams count it once it repeats for several periods. If you do, write the rule down and tag it as its own line. For the full exclusion list, read does ARR include one-time fees.

Worked example: ARR from a mixed book of contracts

These are the calculator's default numbers. They are illustrative.

• Monthly plans bill $20,000 a month in total: $20,000 x 12 = $240,000.
• Annual plans total $450,000 a year. Some prepaid, some bill monthly. Both count at $450,000.
• Multi-year deals carry $900,000 of subscription value on three-year terms: $900,000 / 3 = $300,000.
• Committed usage minimums add $60,000.
• ARR is $240,000 + $450,000 + $300,000 + $60,000 = $1,050,000, or $87,500 of MRR.

Left out: $75,000 of one-time fees and services, and $25,000 of usage above the commitments. Adding them would show $1,150,000, which overstates ARR by 9.5% ($100,000 / $1,050,000). Booking the multi-year deals at full value would add another $600,000. Both mistakes look like growth and come back as churn when the money does not repeat.

Mixed terms get messier with pilots, ramps and mid-term changes. The rules for each are in how to calculate ARR from mixed contract terms.

The ARR bridge: why ARR moved, not just how much

Total ARR tells you where you are. The ARR bridge tells you how you got there. The calculator uses the lines ORM uses to build gross and net retention every month:

Worked example (illustrative, the calculator's defaults): a year starts at $4,000,000. Gains are $1,100,000 of new logos, $150,000 of new product and $250,000 of increases, $1,500,000 in all. Losses are $300,000 of churned customers, $60,000 of churned product and $120,000 of decreases, $480,000 in all. Net new ARR is $1,500,000 - $480,000 = $1,020,000, so ending ARR is $5,020,000 and growth is 25.5%.

The same numbers give retention. GRR is ($4,000,000 - $480,000) / $4,000,000 = 88.0%. NRR adds back the $400,000 of expansion: $3,920,000 / $4,000,000 = 98.0%. ARR grew a quarter, yet the customers you started the year with are paying you 2% less. Only the bridge shows both facts at once.

Two rules keep it honest. Beginning ARR is last period's ending ARR, with no restatements. And within one product, net the ups and downs: an account that adds 40 seats and drops 15 is one increase of 25. The month-by-month build is in how to build an ARR waterfall.

ARR growth rate, GRR and NRR benchmarks

Compare annual figures with annual benchmarks. A monthly NRR of 99% is not comparable with an annual median of 101%.

The worked example sits right on the 88% GRR median and below the 101% NRR median. Its expansion share is 26.7%, well under the 40% median, which says the growth leans on new logos. For the growth math over several periods, read how to calculate ARR growth rate.

Common ARR mistakes

• Multiplying invoices by 12. An annual prepayment billed in March is not 12 months of March. Use the contract's annual rate.
• Counting total contract value. A $900,000 three-year deal is $300,000 of ARR.
• Using the final-year rate on a ramp deal. Book this year's rate and hold the step-ups as contracted future ARR. See ARR for a ramp deal.
• Mixing in one-time fees. They inflate ARR this year and show up as churn next year when they do not repeat.
• Annualizing one strong month. The third month of a quarter is usually the largest, so MRR from a quarter-end month x 12 runs high.
• Restating beginning ARR. Once the starting number is recalculated, the bridge stops reconciling and becomes a set of unrelated snapshots.
• Counting signed deals that are not live. That is committed ARR. Report it on its own line.

What Pete Furseth watches in an ARR number

Pete Furseth, ORM's COO, has a short list of operator checks for ARR.

• One chart for the CFO. If he could put one chart in front of every SaaS CFO, it would be the monthly ARR waterfall in the lines above, with GRR and NRR on the same page. Beginning ARR equals the prior month's ending ARR. In his words, "this reconciling waterfall by month is magic."
• Pick one amount field. One account had nine amount fields covering TCV, ACV, ARR, renewal amount, and legacy fields that stopped being filled in after 2021. It took several weeks to sort out, because no single person knew how to read them. Decide which field is ARR, write it down, and use it everywhere.
• Tie it to what you report. When ORM validates a new customer's data, the first check is that bookings added up for the year match what the company reports internally. Do the same with ARR before it goes in a deck.
• Keep it consistent across slides. A board trusts a number that shows up the same way on the next slide, and rolls up the same way from region to total. If it changed, explain why.
• Do not extrapolate usage. For consumption revenue, last month's usage x 12 is not a forecast. Find what drives usage, forecast the drivers, then translate that into revenue.

Pete's view on scale: ARR reporting is worth doing early. A company with about $5M of ARR and three reps may be too small for a machine learning forecast, but ARR reporting and sales resource planning can still be worth doing.

ARR, MRR or run rate?

ARR and MRR are the same recurring base on two clocks. Boards and annual-contract businesses use ARR. Month-to-month businesses and teams watching short-term movement use MRR. Revenue run rate is different: it annualizes everything you billed, recurring or not. The full comparison is in ARR vs MRR.

ORM's take: ARR is the scoreboard, the bridge is the diagnosis

This calculator gives you a clean ARR number and a bridge for one period. It cannot tell you which accounts will churn at renewal, which ones are ready to expand, or what ending ARR will be next quarter.

That is what ORM's models do. We build the monthly ARR waterfall from your own systems, forecast each line forward, and flag the renewals and expansions that move the number. ORM targets 95% accuracy on the forecasts it builds. The bridge shows where ARR came from. The forecast shows where it is going.

Common questions

How do you calculate ARR?

Annualize every active subscription and add them up. Monthly plans are the monthly fee times 12, annual plans count at their yearly fee, and multi-year deals are the subscription value divided by the term in years. Add committed usage minimums. Leave out one-time fees, services and overage. If every customer bills monthly, ARR is simply MRR times 12.

How do you convert MRR to ARR, and ARR to MRR?

Multiply MRR by 12 to get ARR, and divide ARR by 12 to get MRR. $84,000 of MRR is $1,008,000 of ARR, and $1,000,000 of ARR is about $83,333 a month. Only convert recurring revenue. If the MRR figure includes setup fees or a month of unusual overage, multiplying by 12 bakes that one-off into a full year.

Does ARR include one-time fees or usage revenue?

One-time fees, no. Implementation, onboarding, training and project services bill once, so they sit outside ARR. Usage counts only up to a contracted minimum: a customer with a $60,000 annual floor who uses $85,000 adds $60,000 to ARR. Report the rest as a separate line so retention is measured on revenue that was meant to repeat.

How do you calculate ARR for a multi-year contract?

Divide the total subscription value by the term in years. A $900,000 three-year deal adds $300,000 to ARR, not $900,000. If the price steps up each year (a ramp deal), use the rate in effect this year and hold the later steps as contracted future ARR. Using the final-year rate counts money the customer is not paying yet.

What is net new ARR, and how do you get ARR growth?

Net new ARR is new customer ARR plus expansion, minus contraction and churn, for one period. Ending ARR is starting ARR plus net new ARR. ARR growth rate is net new ARR divided by starting ARR. Starting at $4,000,000 and adding $1,020,000 net is 25.5% growth. Gross new ARR alone overstates growth by the size of the churn line.

Is this an accounting rate of return (ARR) calculator?

This ARR means annual recurring revenue, the subscription metric SaaS companies report to boards and investors. Accounting rate of return is a capital budgeting ratio: average annual profit from an investment divided by its initial or average cost. Same three letters, different question. If you are judging a project or equipment purchase, you want the accounting version.

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