Contracted Annual Recurring Revenue (CARR)

For subscription businesses, Contracted Annual Recurring Revenue (CARR), also known as Committed Annual Recurring Revenue, is a common metric used to describe how much money a business expects to make on an annual basis, including both new customers and renewals.

This is a key metric closely related to ARR that measures not only the monthly recurring revenue over a year but also future revenue and cancelations that might happen and will affect a company's future growth.

CARR and ARR: What is the difference?

While the Annual Recurring Revenue, or ARR, measures the expected revenue from active users on a recurring annual basis, the CARR metric takes into account the ARR plus revenue from contracts signed in advance and future cancellations.

In other words, CARR is a predictable revenue stream indicator that considers the fact that new customers take several months to become fully active, so it includes both the term of the initial agreement and the renewal terms.

Therefore, CARR goes one step further as it also measures new logo revenue growth, expansion rate, and churn rate in a single number, which ARR does not.

Which one is better, CARR or ARR?

ARR is the most critical measurement for any organization to track that follows a subscription model. However, depending on a company's growth stage, CARR may be more relevant because it is a leading indicator that may help business executives comprehend the overall health of the business in the coming months rather than simply the current state.

For instance, fast-growing SaaS companies or B2B companies with a few months of onboarding may want to consider CARR first, depending on how long it takes a company to initiate customer contracts. ARR metrics may not reflect the complete picture like CARR.