Annual Recurring Revenue (ARR) is a critical metric for subscription-based and SaaS businesses. It represents the predictable revenue you can expect to receive from existing contracts over one year. L...
Last updated Jul 22, 2026 · 4 min read
Annual Recurring Revenue is calculated by taking the monthly recurring revenue (MRR) and multiplying by 12. It's particularly important for companies with:
Unlike one-time revenue, ARR provides visibility into predictable, recurring cash flows. It's a key metric for business valuation, cash forecasting, and investor relations.
ARR = Monthly Recurring Revenue × 12
Light automatically calculates MRR from your subscription contracts:
For example, if you have:
Your MRR = EUR 1,416.67, therefore ARR = EUR 17,000.
ARR changes as contracts are added, renewed, or churned. Light tracks these movements:
New ARR is revenue from new contracts signed in the current period that had no prior contract value.
Expansion ARR is the incremental revenue from existing customers through upsells or additional purchases.
Contraction ARR is revenue reduced by existing customers through downgrades (price or quantity decreases).
Churn ARR is revenue lost from contracts that ended.
Your net ARR growth = New ARR + Expansion ARR - Contraction ARR - Churn ARR
Good to know: Tracking these components separately provides insights into whether growth comes from new customers, existing customer expansion, or churn reduction. Light also derives net revenue retention (NRR) and gross revenue retention (GRR) from these movements.
ARR tracking is calculated automatically from your contracts:
One-time contract lines are excluded from MRR and ARR. See ARR and SaaS metrics for the contract fields involved.
Light provides multiple views of ARR data on the SaaS Metrics dashboard:
Metric charts and stats show:
Customer drilldown breaks each period down to customer level, classifying every customer as new, expansion, contraction, churn, or retained.
AI summaries generate a natural-language executive summary across the charts and stats you select.
You can save your own charts and arrange them into a personalized dashboard view.
For multinational companies, ARR can be reported in local currency (per entity) or group currency:
Because rates are fixed at the contract's billing start, historical MRR and ARR figures stay stable — later exchange rate changes do not retroactively shift past periods.
Tip: Report ARR in your group currency for board/investor presentations and in local currency for subsidiary-level operational reporting.
When customers upgrade, downgrade, or churn mid-period, Light adjusts ARR calculations:
Upgrades (expansion): Increase the price or quantity on the contract's lines, or add new recurring lines. Light classifies the incremental MRR as expansion.
Downgrades (contraction): Reduce the price or quantity on the contract's lines. Light classifies the reduction as contraction.
Churn: Terminate the contract. Light removes its MRR from the termination date.
Light automatically recalculates ARR as these contract changes are published.
It's important to note that ARR differs from recognized revenue under IFRS 15:
For example, if a customer pays EUR 12,000 upfront for a 12-month SaaS contract:
Light reports both metrics separately: ARR for business management and deferred revenue for financial reporting compliance.
ARR data feeds into Light's budget and scenario planning features:
See Budget Scenarios for detailed forecasting capabilities.
Define recurring clearly: Establish which contracts qualify as "recurring" (typically 12+ month terms with auto-renewal).
Clean data discipline: Ensure all subscription contracts have accurate start/end dates and billing frequency.
Cohort tracking: Segment ARR by acquisition channel, customer segment, or geography to identify high-value customer sources.
Churn monitoring: Track churn rate monthly and investigate spikes in ARR reduction.
Reconciliation: Monthly, reconcile reported ARR to AR aging report and contract management system.
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