ARR (Annual Recurring Revenue) is the annualized value of your recurring subscription revenue. It's one of the most widely used SaaS metrics, especially for investor reporting and company valuation. CARR (Committed Annual Recurring Revenue) takes this further by including future contracted revenue that hasn't started generating income yet.
What is ARR?
ARR takes your current Monthly Recurring Revenue and projects it over a full year. It's a point-in-time metric — a snapshot of your current revenue run rate — not a sum of revenue over the past twelve months.
For example, if your current MRR is €50,000, your ARR is €600,000. ARR only includes recurring subscription revenue — one-time fees, setup charges, and professional services are excluded.
What is CARR?
CARR (Committed Annual Recurring Revenue), sometimes called Committed ARR, extends ARR by adjusting for what's already known about the future. It adds revenue from contracts that have been signed but haven't gone live yet, and — critically — it deducts revenue from customers who have already cancelled or indicated they won't renew, even if their current subscription period is still running.
For example, if your ARR is €600,000, you've signed a new annual contract worth €24,000 that starts next month, and a customer worth €12,000/year has notified you they won't renew (but their subscription still has 3 months left), your CARR is €600,000 + €24,000 - €12,000 = €612,000. ARR would still show €600,000 because it only reflects currently active subscriptions — the new contract isn't live yet and the churning customer is still paying.
The relationship between ARR and CARR mirrors the relationship between MRR and CMRR. ARR shows what you're earning now, while CARR shows what you're committed to earning.
Why ARR matters
ARR is essential for SaaS businesses because it:
- Simplifies valuation: Investors commonly value SaaS companies as a multiple of ARR, making it the standard unit of measurement for company size
- Enables comparisons: ARR normalizes revenue across companies with different billing cycles (monthly, quarterly, annual), making benchmarking straightforward
- Supports planning: Annual projections help with budgeting, hiring plans, and strategic decisions that operate on yearly timelines
- Smooths seasonality: By annualizing a monthly figure, ARR reduces the noise from monthly fluctuations
ARR vs revenue
It's important not to confuse ARR with actual recognized revenue. ARR is a projection based on your current subscription base — it assumes every customer stays at their current plan for a full year. Actual revenue over twelve months will differ due to churn, upgrades, downgrades, and new customer acquisition.
Similarly, ARR does not account for billing frequency. A customer paying €1,200 annually and one paying €100 monthly both contribute €1,200 to ARR, even though the cash flow timing differs significantly.
When to use CARR over ARR
CARR is particularly valuable when your business has:
- Long implementation cycles: Enterprise contracts that are signed months before going live
- Seasonal sales patterns: Large deals closed at year-end that won't start until the following quarter
- Known upcoming churn: Customers who have given notice but whose subscriptions haven't expired yet
For early-stage companies with short sales cycles and month-to-month billing, ARR and CARR are often nearly identical. As your business matures and contract complexity grows, the gap between them becomes more meaningful and CARR provides a more accurate forward-looking picture.