SaaS businesses build their financial models around recurring revenue. Annual Recurring Revenue (ARR) is the annualized value of all active subscription contracts at a point in time, excluding one-time fees, while Monthly Recurring Revenue (MRR) is the same recurring revenue normalized to a single month. The two are interchangeable with simple math: \(\text{ARR} = \text{MRR} \times 12\), and \(\text{MRR} = \text{ARR} / 12\). Committed MRR (CMRR) and contracted ARR refine the picture by counting only revenue that is signed and active, excluding trials and pipeline. Together, these figures represent the company's "book of business"—the full set of active contracts generating recurring revenue.
Beyond recurring totals, SaaS companies distinguish between bookings, billings, and recognized revenue. Bookings capture the total contract value when a deal is signed, regardless of when revenue is delivered. Billings represent what was invoiced in a period. Recognized revenue is what hits the income statement, typically recognized ratably over the contract term starting on the go-live date. Cash collected for service not yet delivered sits on the balance sheet as deferred revenue, a liability that unwinds into revenue as the service is performed.
Two contract-level measures matter alongside these aggregates. Annual Contract Value (ACV) is the annualized revenue of a single contract, blending recurring and one-time components normalized to a year. Total Contract Value (TCV) sums all revenue across the full contract term. ACV is to ARR as one contract is to the customer base: ACV describes an individual deal, while ARR aggregates the recurring portion across all customers. Pricing structures further shape these numbers, with usage-based, per-seat, and tiered models—sometimes layered as a base subscription plus a usage-based component—determining how revenue scales within a contract. To gauge productivity, leaders often divide total ARR by headcount to compute implied ARR per employee.