ARR (Annual Recurring Revenue)

ARR represents the total annualized revenue generated from all subscriptions. It provides a clear shot of a company's ongoing revenue stream. ARR is a crucial metric for assessing a company's financial health and growth potential, as it indicates the revenue expected to be earned over the next year.

Use case to calculate ARR:

An email marketing tool charges a flat fee of €100 per month for platform access. The tool also charges €0.50 per email sent per month. To make it easier, let’s imagine they only have one client.

• If the business sends 10,000 emails in a given month, their total bill would be €5,100 (€100 flat fee + 10,000 emails sent x €0.50 per email).
• If they only send 5,000 emails in a given month, their total bill would be €2,600 (€100 flat fee + 5,000 emails sent x €0.50 per email).

To calculate the Annual Recurring Revenue (ARR) for the email marketing tool with the provided pricing structure, we need to consider the flat fee and the estimated number of emails sent per month.

Let's assume the business subscribes to the tool for a year.

• Flat fee per month: €100.
• Estimated number of emails sent per month: Let's say 10,000 emails.

To calculate the ARR:

• Multiply the flat fee by 12 (months): €100 x 12 = €1,200.
• Multiply the estimated number of emails sent per month by the price per email and by 12 (months): 10,000 emails x €0.50 x 12 = €6,000.

Add the results together:

• €1,200 (flat fee) + €6,000 (price per email) = €7,200

The ARR for this email marketing tool would be €7,200 per year.