What is Contracted Annual Recurring Revenue (CARR)?
Contracted Annual Recurring Revenue (CARR) is a financial metric that measures the annualized value of recurring revenue from signed contracts for SaaS companies or subscription-based businesses. It gives you a snapshot of the revenue that a business can expect to receive over a year, based on its existing contractual agreements.
Why is Contracted Annual Recurring Revenue (CARR) Important in SaaS?
CARR, or Contracted Annual Recurring Revenue, focuses on revenue from customers committed to a contractual agreement, giving you a more accurate and predictable revenue figure for the company's financial planning.
Here are a few reasons why Contracted Annual Recurring Revenue (CARR) is important in SaaS.
- CARR helps SaaS companies forecast their revenue more accurately as it only includes revenue from signed contracts. This enables SaaS businesses to better plan their budgets, resources, and growth strategies. Also, it helps in making more informed decisions.
- Since CARR highlights revenue generated from customers who have signed contracts, indicating a higher level of commitment. So, understanding CARR can help businesses identify customers more likely to stay with the company in the long run, resulting in lower churn rates and higher customer retention.
- CARR is a metric that helps companies to evaluate their financial performance over time. By tracking CARR, SaaS businesses can identify trends in their revenue growth, evaluate the effectiveness of their sales and marketing strategies, and make data-driven decisions.
- Investors look forward to investing in companies with predictable revenue streams. Since the CARR metric demonstrates the stability and commitment of a SaaS company’s existing customer base, it indicates its potential to attract potential investors.
How to Calculate Contracted Annual Recurring Revenue (CARR)?
To calculate CARR, add up the recurring revenue a business expects to receive from existing customers (minus churned revenue). You can use the formula to calculate CARR monthly, quarterly, or annually.