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ARR Growth Rate

Date created: Apr 7, 2021  •   Last updated: Jul 5, 2021

What is ARR Growth Rate?

ARR Growth Rate is the change in annual recurring revenue over a given period, typically represented in a percentage.

Alternate names: Annual Recurring Revenue Growth Rate

Formula

ƒ (Sum(ARR end of period) – Sum(ARR beginning of period))/Sum(ARR beginning of period)
ƒ (Sum(ARR end of period)/Sum(ARR beginning of period)) - 1

How to calculate

A SaaS business saw an increase in ARR from the previous year at $2 million to $3.5 million ARR at the end of this year. The ARR Growth Rate for this business at the end of this year is ($3.5m - $2m) / $2m which is 75%.

ARR Growth Rate

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What is a good ARR Growth Rate benchmark?

The median ARR Growth Rate is 41% for companies with an ARR between $2.5 million and $10 million.

YoY Growth Rate by ARR

YoY Growth Rate by ARR

OpenView, 2020

More about this metric

ARR Growth Rate is a growth metric often used to measure percentage growth in subscription revenue model businesses. Frequently used as an internal measure of growth in SaaS companies, ARR Growth Rate is calculated by dividing the difference between Annual Recurring Revenue (ARR) at the end of a given time period and beginning of the same time period, by the ARR at the end of the period. It is expressed as a percentage.

By tracking ARR Growth Rate, you gain insight into the velocity at which your business is growing and the ability to identify and address potential roadblocks and decline in growth. Drops in ARR Growth Rate can be remedied in many ways, examples include: reducing churn, increasing S&M spending at a fixed LTV:CAC, expanding to new markets, and increasing your ARPU/ACV.

Recommended resources related to ARR Growth Rate

Here’s a great article about the ARR Growth required for a SaaS company to go public.