There’s many important numbers you can use in order to evaluate SaaS companies, but the most important one is Annual Recurring Revenue (ARR) 📅

Annual Recurring Revenue (ARR) is the total amount of revenue a company expects to receive in the next year from its customers via subscriptions 🔄

Let’s imagine I run a music streaming service, and each customer pays me $100/year as an annual subscription fee 🎵

If I have 1,000 customers, my ARR would be $100 x 1,000 = $100,000.

This is because I expect my customers to pay me $100,000 in the next year.

ARR provides a predictable and easily comparable financial number for any SaaS company.

Think of it like your yearly salary, but for SaaS companies 💰

Keep in mind that ARR is NOT the same as revenue!

Revenue measures how much money a company actually makes, while ARR is more like a prediction of how much the company will make from its existing customers in the next year 🔭

Just like a company can have a revenue growth rate, it can have an ARR growth rate. This just measures how much the company’s ARR is increasing over a period of time.

For example, a company with $100M in ARR today growing 50% year-over-year will have $150M in ARR a year from now assuming they hit their 50% growth rate 📈