Annual Recurring Revenue (ARR) is more than just a SaaS metric—it's the backbone of revenue forecasting, valuation, and strategic decision-making. For CFOs navigating the complexities of modern SaaS finance, understanding the moving parts of ARR isn’t optional—it’s essential.

At TrueRev, we believe ARR should be simple, precise, and actionable. Let’s break it down.

First, What Is ARR—Really?

ARR (Annual Recurring Revenue) is the predictable, subscription-based revenue a SaaS company expects to generate in a 12-month period from active customers. It strips away one-time services, add-ons, and variable usage fees—giving you a clean, recurring revenue baseline.

This is your true north metric. Why? Because ARR is the clearest signal of business health, scalability, and valuation potential—especially for CFOs reporting to boards, investors, and internal teams.

The Core Building Blocks of ARR

At TrueRev, we like to look at ARR as a dynamic formula, not just a static number. Here are the key levers:

New ARR

Revenue from brand-new customers. It’s your growth engine—driven by marketing, sales, and product-market fit.

Expansion ARR

Upsells, cross-sells, seat increases, feature upgrades—anything that boosts contract value within your current customer base.

Contraction ARR

ARR lost when customers downgrade their plans or reduce user seats. It doesn’t mean the customer left—it means they’re paying less.

Churned ARR

ARR lost when a customer cancels entirely.

The ARR Formula (In Real Life)

ARR = New ARR + Expansion ARR – Contraction ARR – Churned ARR

At TrueRev, we automate the calculation and visualization of ARR and its components so finance teams can spend less time reconciling spreadsheets and more time driving strategy.

Why ARR Is a Strategic Power Metric

For SaaS CFOs, ARR isn’t just a reporting metric—it’s a strategic weapon. It impacts:- Revenue forecasting- Valuation- Retention strategies- Product roadmap