Annual recurring revenue
(ARR) Annual recurring revenue is a measure of long-term revenue predictability that captures the value of repeat customers.
![Request Demo](https://mighty-basketball-fd4aeed960.media.strapiapp.com/p_SEO_Inner_CTA_3d05c696de.webp)
Annual Recurring Revenue (ARR) is a financial metric used in ecommerce accounting that tracks the estimated revenue from customers on a yearly basis. ARR is calculated by taking the average revenue per user/account multiplied by the number of recurring customers over any given period of time. It gives companies a way to measure their long-term revenue stability since it only accounts for customers with ongoing, repeat business.
Formula
Annual Revenue = Average Order Value (AOV) x Number of Orders per Year
Example
Let's consider an ecommerce store that sells clothing online.For this example:The Average Order Value (AOV), which represents the average amount spent per order, is $50.The Number of Orders per Year is 1,000.To calculate the Annual Revenue:Annual Revenue = $50 (AOV) x 1,000 (Number of Orders per Year) = $50,000In this example, the Annual Revenue for the ecommerce store is $50,000. This represents the total revenue generated by the store over the course of a year, considering the average order value and the number of orders placed.
Why is ARR important?
ARR provides a glimpse into the financial future of an ecommerce business by measuring the potential revenue that will be generated from existing customers over a 12-month period. This metric helps to gauge the stability and scalability of a business and provides important insights into customer growth and customer satisfaction.
Which factors impact ARR?
Factors that influence ARR include customer acquisition and retention, customer segmentation, marketing and advertising, product features, pricing, customer service, competition, and other industry trends.
How can ARR be improved?
ARR can be improved by increasing the number of customers, encouraging customers to renew or upgrade their subscriptions, and by decreasing customer churn.
What is ARR's relationship with other metrics?
ARR is closely related to metrics such as Average Revenue Per User (ARPU), Customer Acquisition Cost (CAC), Customer Lifetime Value (CLV), and Gross Profit Margin (GPM). ARR measures the total revenue generated from customers while other metrics measure different aspects like cost and return on investment.
![Request Demo](https://mighty-basketball-fd4aeed960.media.strapiapp.com/p_SEO_Inner_CTA_3d05c696de.webp)
Explore more Glossary terms
App Store Optimization
App Store Optimization (ASO) is a process of enhancing an application’s visibility within the app stores to boost organi...
Average Item (SKU) rating
Average Item (SKU) Rating represents the mean rating that consumers give to a specific Stock Keeping Unit (SKU).
Amplification Rate
Measure content engagement with Amplification Rate. Gauge content sharing frequency and audience visibility to optimize ...
Average Ticket Count
Average Ticket Count is a key ecommerce metric calculated by dividing gross sales by total units sold in a given period.
Accrued revenue
Track expected revenues with Accrued Revenue. Recognize earned revenue before sale closure or product delivery for effic...
AOV of First Purchases
AOV of First Purchases is the average amount spent by a customer on their initial transaction in an online store.