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Annual recurring revenue (ARR) tracks the expected revenue from products and services that are sold with contracts that last at least 12 months. Software as a service (SaaS) companies, and other companies that offer subscriptions, commonly track their ARR.
To calculate your ARR, add up the annualized revenue from subscriptions minus one-time and variable fees — because those are not recurring. Additionally, you may need to add income from expansion revenue (i.e., upselling) and subtract lost income from canceled subscriptions (i.e., churn).
You can dig deeper into the ARR to better understand your business. For example, comparing your ARR from existing and new customers. Or looking at how the increased ARR from upselling compares to the ARR you lost from churn.
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