The ARR calculation is the operating discipline behind the headline number. Two subscription stores using slightly different rules can produce ARR figures that differ by 15% on the same underlying business. Getting it right means defining the rules clearly and applying them consistently — month after month, year after year.
The step-by-step ARR calculation
- List all active recurring subscriptions. "Active" means currently billing, or scheduled to bill on its normal cadence. Exclude trials, cancelled, and (usually) paused.
- Normalize each to a monthly amount. Monthly subscriptions stay as-is. Quarterly subscriptions divide by 3. Annual prepay subscriptions divide by 12.
- Sum the normalized monthly amounts — that is your MRR.
- Multiply MRR by 12 — that is your ARR.
Decisions that affect the number
- Pauses. Most operators exclude actively paused subscriptions. A few include them as "committed ARR." Be explicit.
- Trials. Free trials are excluded. Paid trials at a discounted rate are included at their discounted price.
- Failed payments. Subscriptions in dunning are usually included for the first 30 days (you expect to recover); excluded after that.
- Discounts. Include the discounted amount, not the list price. ARR reflects what you actually bill.
Sanity checks
Once you have an ARR figure, two simple checks confirm it: divide by 12 to get MRR and compare to last month's billed revenue (should match within 5%). Then divide ARR by active subscriber count to get ARPU and compare to your headline price points (should look sensible). If either check is off, the calculation has a leak — usually a one-time purchase counted as recurring or a paused subscription mistakenly included. See annual recurring revenue formula for the underlying math.