It is easy to confuse ARR and revenue because they are quoted in the same units (dollars) and sound similar. They tell different stories. ARR is "what is my contracted run-rate going forward?" Revenue is "what did I actually earn last period?" A subscription business uses both — for different audiences and decisions.
The key differences
- Time orientation. ARR is forward-looking (the next 12 months at current run-rate). Revenue is backward-looking (the past period).
- What it includes. ARR includes only recurring subscription charges. Revenue includes everything — one-time purchases, shipping, add-ons, tax-net amounts.
- How it is measured. ARR is calculated from active subscriptions at a point in time. Revenue is recognized over time under accounting rules (often GAAP or IFRS).
- Audience. ARR is the operator's and investor's metric. Revenue is the accountant's and tax authority's metric.
When the two diverge
For a pure monthly-billed Shopify subscription store, ARR and annual revenue from subscriptions should be close — within 5–10% of each other, with the gap from churn, pauses, and timing. For a business with significant prepay revenue, the gap is bigger: ARR shows the steady run-rate, but actual revenue recognized in any quarter is influenced by when prepay customers signed up. For a business with substantial one-time product sales alongside subscriptions, ARR will be much lower than total revenue.
Which one to report to whom
- Internal operating reviews — track both. ARR for the forward picture, revenue for the actual delivery.
- Board and investor updates — ARR is the headline. Revenue confirms it.
- Tax and accounting — revenue is the only metric that matters; ARR has no accounting standing.
- Public benchmarking — ARR is the comparable metric across subscription companies. Revenue is too contaminated by one-time sales.
See annual recurring revenue for the calculation details and revenue recognition for the accounting side.