Convert MRR to Annual Recurring Revenue, calculate YoY growth against last year's ARR, and project ARR 12 and 24 months out at a given monthly growth rate.
Annual Recurring Revenue (ARR) is the annualized value of all recurring subscription
contracts. For most SaaS businesses, it's simply MRR × 12.
ARR vs MRR
ARR = MRR × 12 — for pure monthly subscription businesses.
For businesses with annual contracts, ARR is calculated directly from contract
values: a $12,000/year contract contributes $12,000 ARR regardless of billing
frequency.
The MRR × 12 method is an approximation that works well for monthly billing.
For annual or multi-year contracts, calculate ARR from contract terms directly.
What counts as ARR (and what doesn't)
Include:
- Monthly or annual subscription fees
- Recurring add-ons and seat fees
- Recurring professional services (fixed monthly retainer)
Exclude:
- One-time setup fees
- Non-recurring professional services
- Usage-based revenue that's genuinely variable (some companies include a
normalized baseline, but conservative ARR excludes it)
ARR milestones and what they unlock
ARR
What it means
$1M
Standard Series A threshold (some investors require this)
$3M
Most Series A investors require > $3M with 100%+ YoY growth
$10M
Series B territory; efficiency metrics start mattering
$25M+
Series C/D; institutional growth investors engage
$100M+
IPO-eligible; public market comparables apply
YoY growth rate benchmarks
Investor shorthand: you want to grow ARR at "T2D3" — triple, triple, double,
double, double — meaning 3× growth for 2 years, then 2× for 3 years.
What does this calculator do?
Convert MRR to ARR, calculate Year-over-Year growth versus last year's ARR,
and project ARR at 12 and 24 months given a monthly growth rate.
What Is ARR in SaaS? Annual Recurring Revenue Explained
ARR (Annual Recurring Revenue) is the annualized value of recurring subscription contracts. This guide explains how to calculate ARR, what counts, what doesn't, and how investors use it.
Annual Recurring Revenue (ARR) is the most-reported top-line metric in SaaS.
It represents the annualized value of all active recurring subscriptions.
ARR = MRR × 12 (for monthly billing)
Or for annual contracts: sum of all contract values divided by term length.
Why ARR instead of revenue?
Traditional revenue recognition (GAAP) spreads contract value over the service
period. A $12,000 annual contract signed October 1 generates only $3,000 in
GAAP revenue by December 31.
ARR ignores recognition timing and focuses on the size of the recurring revenue
base right now. It's a snapshot of the revenue engine, not a historical measure.
Exclude:
- One-time setup or onboarding fees
- Variable usage fees (unless you normalize a baseline)
- Professional services that don't recur
- Pilot or POC contracts that haven't converted to subscription
ARR as a fundraising language
When investors ask about ARR, they want to understand the scale and velocity of
your recurring business. The three ARR questions in every fundraise:
What is your current ARR?
What was your ARR 12 months ago? (→ YoY growth)
What is your NRR? (→ retention quality)
These three numbers tell the ARR story: how big, how fast, how durable.
T2D3: The ARR Growth Framework Every SaaS Founder Should Know
T2D3 is the benchmark ARR growth trajectory for venture-backed SaaS — triple twice, then double three times. This guide explains what it means, where it came from, and whether it applies to your business.
T2D3 is shorthand for the ARR growth trajectory that defines successful venture-backed
SaaS: Triple → Triple → Double → Double → Double.
The framework was popularized by Neeraj Agrawal at Battery Ventures and describes
the expected growth pattern from ~$2M ARR to $100M+ ARR over roughly 5–6 years.
The T2D3 trajectory
Year
Starting ARR
Growth
Ending ARR
Year 1
$2M
Triple (3×)
$6M
Year 2
$6M
Triple (3×)
$18M
Year 3
$18M
Double (2×)
$36M
Year 4
$36M
Double (2×)
$72M
Year 5
$72M
Double (2×)
$144M
Starting at $2M ARR and following T2D3 → $144M ARR in 5 years.
Is T2D3 required?
T2D3 is a benchmark for top-decile VC-backed SaaS, not a universal requirement.
Bootstrapped and capital-efficient businesses often grow slower and are still
excellent businesses.
For VC-backed SaaS seeking Series B and beyond, investors will compare your
growth trajectory to T2D3. Tracking below T2D3 isn't a rejection criterion,
but it shapes valuation expectations.
Use the ARR Calculator's projection feature to see
how your current monthly growth rate tracks against T2D3 milestones.
When T2D3 doesn't apply
Bootstrapped SaaS: Capital constraints make T2D3 rates impossible without
external funding. Aim for 50–100% YoY growth at $1M–$5M ARR.
Services-augmented SaaS: If professional services are a large portion of
revenue, pure ARR growth will be slower. Separate recurring ARR from services
revenue in your reporting.
Enterprise SaaS: Long sales cycles mean ARR growth can look lumpy quarterly.
Annual comparisons smooth this out.
ARR and MRR measure the same underlying business from different time horizons. This guide explains when to use ARR vs MRR, how they differ for annual contracts, and which metric investors prefer.
ARR and MRR are two views of the same recurring revenue stream. Knowing when
to use each prevents confusion in investor updates and internal planning.
The core difference
MRR = Monthly Recurring Revenue. One month of recurring revenue.
ARR = Annual Recurring Revenue. One year of recurring revenue.
For pure monthly billing: ARR = MRR × 12. Simple.
The difference matters when you have annual contracts. A $12,000/year
contract contributes:
- $1,000/month to MRR
- $12,000 to ARR
If you only measure ARR, you may not notice that new monthly subscriptions
are trending up or down. MRR catches intra-year trends that ARR smooths over.
When to use MRR
Operational tracking: MRR changes monthly. Track MRR to see expansion,
contraction, and churn in real time. Use MRR for NRR calculations.
Short-term forecasting: MRR growth rate × 12 gives ARR trajectory.
Watching MRR helps you catch inflections before they show up in ARR.
Cash flow planning: Monthly subscription cash in is MRR-based.
Annual subscribers pay upfront, but you recognize it monthly.
When to use ARR
Investor reporting: Investors speak ARR. All benchmarks, multiples,
and fundraising conversations use ARR as the common unit.
Valuation: SaaS companies are typically valued at ARR multiples
(e.g., 8–15× ARR for growth-stage). MRR multiples are just ARR multiples ÷ 12.
Annual planning: ARR targets are cleaner for annual operating plans.
"Reach $5M ARR by December" is more meaningful than "reach $417k MRR."
Calculate your ARR from MRR instantly with the free ARR Calculator.