What is an ARR multiple?

Annual recurring revenue multiplied by a figure typically between 3 and 8. It is used for subscription software because contracted revenue behaves more like a bond coupon than like a sales figure, which makes turnover a defensible basis where it usually is not.

#What decides where you land

Two numbers, both of which a buyer calculates themselves from your customer data.

Gross churn under 5%

top of range

revenue base is durable

Net revenue retention above 100%

premium

cohorts grow without new sales

Churn above 20%

not an ARR business

priced on earnings instead

Net revenue retention above 100% means the customers you had last year are worth more this year than they were, even after cancellations. It is the single strongest signal a subscription business can present.

#What counts as ARR

Contracted, recurring subscription revenue with a renewal that is the default rather than a decision. It does not include one-off implementation fees, professional services, or usage that varies enough to be a sales figure in disguise. Buyers separate these out, and a business presenting €1.2M of "ARR" that contains €300,000 of setup fees loses credibility on everything else in the file.

#When ARR stops applying

Above roughly 20% annual churn the recurring base rebuilds itself every five years, which is a sales operation rather than an annuity. At that point a buyer reverts to earnings.

How recurring revenue affects valuation covers the tiers below full ARR; revenue multiple explained covers the wider ranges.