# Annual Recurring Revenue > **Quick answer**: Annual Recurring Revenue (ARR) measures the predictable yearly revenue a subscription business expects from its customers, calculated by multiplying active subscribers by their average annual contract value. This metric is essential for SaaS companies to forecast growth, evaluate financial stability, and attract investors. Derrick tracks ARR and other firmographic data points across enriched company records in Google Sheets, enabling sales teams to prioritize accounts by revenue size and subscription maturity without leaving their spreadsheet workflow. *Canonical: https://derrick-app.com/glossary/annual-recurring-revenuex* --- Understanding how data enrichment can be applied in real-world scenarios to drivebusiness results and improve operational efficiency. [Start Enriching Now](https://workspace.google.com/marketplace/app/linkedin_email_phone_finder_ia_%E2%80%94_derrick/3746789989?flow_type=2) ## Definition Annual Recurring Revenue Annual Recurring Revenue (ARR) is the amount of predictable and recurring revenue a company expects to receive annually from its subscription-based customers. ARR is crucial for businesses, particularly in the software-as-a-service (SaaS) sector, as it provides a clear picture of the company's financial health and growth prospects. By focusing on Annual Recurring Revenue, companies can better forecast revenue, assess business scalability, and make informed decisions about resource allocation. In digital marketing and sales automation, understanding ARR helps teams identify high-value customer segments and optimize strategies for customer retention and acquisition. A strong ARR indicates a stable and potentially growing customer base, making the business more attractive to investors. In summary, ARR is a vital metric for gauging the sustainability and success of subscription-based business models, allowing for strategic planning and performance evaluation. [Skip the definitions. Start generating business now →](/) ## Here is an exemple of : Annual Recurring Revenue For example, imagine a SaaS company called CloudTech that sells project management software on a subscription basis. At the beginning of the year, CloudTech has 500 customers paying an average of $1,200 per year for their software licenses. This gives them an ARR of $600,000. By mid-year, they've acquired 100 new customers while losing 20 existing ones, and they've increased their average subscription price to $1,300 for new customers. Their new ARR would be calculated as: (580 customers × average annual subscription value) = $754,000. This 25.7% increase in ARR signals healthy business growth to CloudTech's leadership team and investors, indicating both successful customer acquisition strategies and strong retention rates. The company can now confidently plan to expand their development team and increase their marketing budget for the coming year based on this predictable revenue stream. ## You should also read: [What Is An Api?](/glossary/apix)[Appexchange](/glossary/appexchangex)[Applicant Tracking System](/glossary/applicant-tracking-systemx)[Application Programming Interface](/glossary/application-programming-interfacex)[Application Performance Management](/glossary/application-performance-managementx)[Application Programming Interface Security](/glossary/application-programming-interface-securityx)[Artificial Intelligence In Sales](/glossary/artificial-intelligence-in-salesx) ## Why teams choose Derrick. 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