Annual recurring revenue, or ARR, is a metric that measures the revenue that is taken in each year of the current subscriptions or contracts a business has. It's made up of annualized monthly recurring revenue and any annuals contracts (lump payments) the business may also have contractually agreed.
If you remember one thing, remember this: ARR is important because it measures the health of a business that is based on subscriptions.
We don't see the harm in it, although not everybody agrees. For instance, if you have one customer paying you $250 per month, you have $250 of monthly recurring revenue and $3,000 of annual recurring revenue. Any annual contracts from other customers can then be added directly to the extrapolated MRR figure. The obvious caveat here is that extrapolating MRR into ARR relies on your customers staying for, on average, over one year. If your churn rate is high, that may not be the case.
To help you understand ARR, check out: