Annual recurring revenue (ARR) is the normalized annual value of the recurring revenue a business earns from subscriptions or committed contracts. It counts predictable, repeating revenue only, so one-time charges like setup fees, onboarding, or a single hardware sale are excluded. ARR gives subscription and contract-based businesses a stable view of the revenue they can expect to repeat each year.
How it works
ARR is usually derived from monthly recurring revenue (MRR): ARR equals MRR multiplied by 12. If a contract runs for a fixed multi-year term, you can also normalize it by dividing the total recurring contract value by the number of years. For example, a 3-year deal worth 36,000 in recurring fees is 12,000 of ARR. Discounts and mid-term changes (upgrades, downgrades, cancellations) adjust the figure, which is why teams track new, expansion, and churned ARR separately.
Why it matters
ARR smooths out the noise of individual invoices and shows the underlying run rate of a business. It is a common input for growth planning, valuation, and forecasting, and it makes retention easy to see: if churn outpaces new and expansion revenue, ARR falls even when sales are busy.
How it applies to B2B quoting on Shopify
Most quoted B2B orders are one-time purchase orders, so they do not count toward ARR. Where ARR becomes relevant is recurring arrangements: standing supply agreements, subscription-style reorders, or annual service contracts that you quote and renew. If you quote those on Shopify, separate the recurring portion from one-time line items when you calculate ARR. Turning accepted quotes into repeatable contracts is what converts quote volume into predictable recurring revenue.
See related terms in the B2B quoting glossary, or review pricing if you are evaluating tools.