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# 5 Examples of Annual Recurring Revenue

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Annual recurring revenue, or ARR, is a measure of the value of a customer contract or subscription based on recurring payments normalized to a one year term. The following are illustrative examples.

## Monthly Recurring Revenue

A customer subscribes to a service that can be canceled at any time with a monthly cost of \$800. Annual recurring revenue is simply 12 times the monthly recurring revenue.
 ARR = MRR × 12 = \$800 × 12 = \$9600

## Irregular Payments

A customer signs a contract for \$13 million for the construction of a building that will take two years to construct. Payments are made irregularly based on project milestones. Irregular payments such as this are often often not considered recurring revenue. It is common to use annual contract value or annual run rate to measure revenue in industries where irregular payments are common. However, in some cases a firm views annual recurring revenue as any revenue that is predictable such that it can be calculated from irregular payments as follows.
 ARR = total predictable payments / contract length = \$13 million / 2 = \$6.5 million

## Non-standard Contract Length

Annual recurring revenue is normalized to one year. For example, a contract that spans 32 months worth \$1000 can be calculated as follows.
 ARR = (total revenue / contract months) × 12 = (\$1000 / 32) × 12 = \$375

## One-time Fees

One-time fees are excluded from annual recurring revenue. For example, a customer who pays a \$900 set up fee followed by \$100 monthly payments represents an ARR of:
 ARR = monthly payments × 12 = \$100 × 12 = \$1200
Similar metrics such as annual contract value and annual run rate do include one-time payments.

## Average For All Customers

Annual recurring revenue can be calculated as an average for all customers by determining what revenue is recurring, normalizing it to an annual rate and dividing by all customers. This may be based on trailing revenue or a forward estimate based on signed contracts. For example, a software as a service firm that has annual subscription revenues of \$12 million and 50,000 customers.
 ARR = recurring revenue / number of customers = \$12 million / 50,000 = \$240
 Overview: Annual Recurring Revenue Type Definition A measure of the value of a customer contract or subscription based on recurring payments normalized to a one year term. Related Concepts

## Sales

This is the complete list of articles we have written about sales.
Account Management
Ambiguity Effect
Anchoring
Bargaining Power
Bias For Action
Bliss Point
Bogey
Call To Action
Choice Architecture
Churn Rate
Closing Techniques
Complex Sales
Concept Selling
Conversion Rate
Cross-Selling
Curiosity Drive
Customer Motivation
Customer Needs Analysis
Customer Persona
Customer Profitability
Customer Relationships
Customer Retention
Customer Satisfaction
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Deal Desk
Decoy Effect
Default Effect
Excuses
Fear Of Missing Out
Figure Of Merit
Final Offer
Hard Selling
Ideal Customer Profile
Influencing
Low Ball
Marketing Channels
Message Framing
Needs Identification
Negotiation Process
Nudge Theory
Objection Handling
Opportunity
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Personal Selling
Post-Sales
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Pricing Strategy
Product Differentiation
Product Knowledge
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Puffery
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Sales Activities
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Sales Data
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Sales Force Automation
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Sales Model
Sales Objectives
Sales Pipeline
Sales Planning
Sales Process
Sales Quotas
Sales Risk
Sales Skills
Sales Strategy
Scarcity Marketing
Soft Selling
Solution Selling
Upselling
Willingness To Pay

## Sales Metrics

A list of common sales metrics.

## Attach Rate

Overview of a common marketing and sales metric.

## Sales Conversion Rate

The 3 types of sales conversion rate with examples.

## Sales Efficiency

An overview of sales efficiency with an example.

## Contribution Margin Calculation

An overview of contribution margin with example calculations.

The formula for cost per lead with calculation examples.

## Annual Contract Value

The definition of annual contract value with calculation examples.

## Sales Goals

The common types of sales goal with examples.

## Win Rate

The definition of win rate with calculation examples for sales proposals, sales revenue and advertising bids.

## Gross Margin

An overview of gross margin with calculation examples.

## Marketing Metrics

A list of common ways to measure marketing results.

## Marketing Efficiency

An overview of marketing efficiency with calculation examples.

## Active Customers

The definition of active customers with examples.

## Market Share Analysis

A guide to market share analysis with examples.

## Marketing Goals

Common types of measurable marketing goals with examples.

## Brand Preference

An overview of brand preference.

## Marketing Analysis

An overview of marketing analysis with examples.

## Market Sizing

The common types of market sizing with examples.

## Benchmarking

A few examples of benchmarking.
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