Annual Recurring Revenue
Definition
The annualised value of all recurring revenue contractually committed by active customers at a given point in time, calculated by multiplying the monthly recurring revenue by twelve or by summing the annualised contract values of all active subscriptions. Annual recurring revenue is a forward-looking measure of contracted revenue, not a measure of revenue recognised in the trailing twelve months. It reflects what the company would earn in the next twelve months if no new customers were added and no existing customers churned.
Common Misapplication
The most common misapplication is conflating annual recurring revenue with trailing twelve-month revenue. They measure different things. Trailing twelve-month revenue records what was recognised in the past. Annual recurring revenue projects what is contracted for the future. Using trailing revenue as a proxy for annual recurring revenue overstates or understates the contractual revenue base depending on whether the company is growing or declining.
FFI Standard Reference
This term is defined and applied in Book 2, Section 2.2: The Unit Economics Standard.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Annual Recurring Revenue. https://ffistandard.org/glossary/annual-recurring-revenue/. 2026.