Definition
ARR standardizes recurring revenue for annual comparisons. $1M ARR is a common milestone for seed/Series A startups. GitDealFlow tracks the engineering teams building the products generating that ARR.
How it works in practice
Annual Recurring Revenue is the normalized, forward-looking revenue from subscription contracts: monthly recurring revenue multiplied by twelve, or the annualized value of committed recurring contracts. ARR exists to make SaaS revenue comparable, a company with $100K MRR has $1.2M ARR, and that number can be compared across companies, stages, and quarters without worrying about billing cycles.
ARR is not the same as cash or even GAAP revenue. It counts contracted recurring revenue, which may be billed monthly, annually, or on custom terms; it excludes one-time fees, professional services, and non-recurring hardware sales. That is why investors look at ARR growth, net revenue retention, and gross margin together, ARR alone can flatter a company that is growing revenue by discounting or churning large accounts.
ARR milestones are shorthand for stage: $1M ARR signals validated early traction, and each subsequent milestone, $10M, $30M, $100M, typically unlocks a different class of investor. Behind every ARR number is a product team. GitDealFlow reads the public GitHub activity of 350+ startups, tracking commit velocity, contributor growth, and repository expansion, so investors can see whether the engineering engine behind the ARR is accelerating or stalling.
Key points
- ARR = MRR times 12, or the annualized value of recurring contracts.
- It excludes one-time fees and services; it is not the same as cash or GAAP revenue.
- ARR growth, retention, and margin must be read together.
- Milestones like $1M, $10M, and $100M ARR mark stages of the fundraising ladder.
- The product team behind the ARR is visible in public engineering data.
Frequently Asked Questions
What ARR do VCs look for?
Seed: $0-500K ARR usually pre-revenue. Series A: $1-2M+ ARR with strong growth. Series B: $5-10M+ ARR. Engineering velocity (GitDealFlow) is more predictive than ARR for very early deals.
How is ARR calculated?
Multiply current monthly recurring revenue by twelve, or annualize the value of committed recurring contracts, for example, $50K MRR is $600K ARR. For annual contracts, take the total contracted recurring value and divide by the contract duration in years. The key is consistency: only recurring revenue counts.
What's the difference between ARR and revenue?
Revenue is what the company actually recognizes and bills, while ARR is the annualized value of its recurring base. A company can have $2M ARR but recognize less than $2M in a given year if customers pay monthly, and it can bill more if it sells annual contracts. ARR is a forward-looking metric; revenue is a historical one.
Does ARR include one-time fees?
No. Implementation fees, onboarding, professional services, hardware, and other non-recurring charges are excluded from ARR because they do not repeat. Only committed recurring revenue, subscriptions, licenses, and usage-based components with recurring billing, counts. Mixing one-time revenue into ARR inflates the number and breaks comparability with other SaaS companies.