Contracted Annual Recurring Revenue (CARR) is a key metric used in the Software-as-a-Service (SaaS) industry to assess the predictable and recurring revenue generated from active customer subscriptions over a specific period, usually a year. It represents the sum of all annualized subscription contract values signed with customers, excluding any one-time or non-recurring charges.
In the SaaS business model, customers typically pay a recurring fee on a monthly or annual basis to access the software services provided by the company. The CARR metric helps SaaS companies measure their revenue stability, growth potential, and overall performance.
To calculate CARR, follow these steps:
- Identify Active Contracts: Determine all active contracts that are currently in effect and generating recurring revenue.
- Annualize Monthly Contracts: For contracts billed monthly, multiply the monthly subscription value by 12 to annualize the revenue.
- Sum Up Annualized Contracts: Add up the annualized values of all active contracts to get the total Contracted Annual Recurring Revenue (CARR).
Here’s the formula:
CARR = Σ(Annualized Value of Active Contracts)
For example, let’s say a SaaS company has the following active contracts:
- Contract 1: $500/month
- Contract 2: $1,000/month
- Contract 3: $750/month
To calculate CARR:
CARR = ($500 * 12) + ($1,000 * 12) + ($750 * 12) = $6,000 + $12,000 + $9,000 = $27,000 per year.
In this scenario, the company’s Contracted Annual Recurring Revenue (CARR) is $27,000. This metric is essential for SaaS companies to analyze their revenue growth, predict future revenue streams, and assess the health of their business.
