ARR

ARR is the headline number in almost every conversation about a subscription business, which is
exactly why it gets stretched. The word "recurring" is doing real work in that phrase — it is a
promise that the revenue will still be there next year without the company having to re-sell it.
Everything that gets miscounted in ARR is revenue that does not actually keep that promise.

For a founder raising or selling, ARR is the number a buyer or investor anchors on before they
have read anything else about the business. That makes it tempting to present the most generous
version. It also makes a generous version the fastest way to lose credibility with anyone who
checks, because ARR is one of the easiest numbers to unwind from the underlying contracts. A
buyer who finds a gap between the ARR on the deck and the ARR in the accounting system does not
just correct the number — they start re-checking everything else you told them.

In AI companies specifically, ARR gets stretched in a way that is almost specific to the sector:
usage-based pricing, credits, and consumption commitments get rounded up into "recurring" when
the actual spend swings month to month with how much a customer's product is being used. A
number built on committed usage is a different claim from a number built on committed dollars,
and the difference matters most in exactly the deals where AI companies are being valued on
growth.

ARR is not one calculation — it is a rule about what to include, applied consistently.

Start with committed subscription revenue. Take the contracted subscription value for each
customer, annualise it, and add it up. A customer paying monthly on a rolling contract still
counts, as long as the relationship is genuinely recurring rather than a one-off engagement
dressed up as a subscription.

Decide what to exclude. Professional services, implementation fees, one-time setup charges,
and revenue from a pilot with no renewal commitment are not recurring by definition, however
often they show up on the same invoice as the subscription. Usage-based revenue is the harder
case: if a customer's contract guarantees a minimum spend, that minimum can reasonably count; the
variable amount above it usually should not, because it is not committed.

Handle churn and expansion the same way every month. ARR is a snapshot, and a snapshot is
only useful if it is taken the same way each time — new ARR added, ARR lost to cancellations, and
ARR gained or lost to existing customers changing their plan, all reconciled on a consistent
schedule.

Reconcile it to the accounting system. ARR is a sales and forecasting metric, not a
GAAP or IFRS line item, so it will never appear as such on a P&L. What it must do is tie back to
recognised revenue in a way someone can trace — a buyer's diligence team will ask to see exactly
that reconciliation, contract by contract.

"Recurring" gets stretched to include revenue that is not. The most common inflation is
folding one-time services, a signing bonus credit, or a single large usage spike into the
recurring number. Ask, for every material customer, what specifically repeats without the company
doing anything to re-sell it.

Usage-based and credit pricing invite double-counting. A company selling AI usage in credits
can report the value of credits sold, the value of credits consumed, or the contracted minimum —
three different numbers, and only the last one is safely "recurring" in the traditional sense. Ask
which one is being called ARR, and ask for it broken out from committed subscription revenue.

A logo counted once but billed twice looks bigger than it is. Multi-year contracts, mid-term
upsells, and add-on products sold to the same account can each get separately annualised and
added back in, overstating the customer's true run rate.

Growth in ARR can hide churn underneath it. A company can grow ARR every quarter while
quietly losing a meaningful share of its existing customers, as long as new sales outpace the
losses. The gross figure alone will not tell you this — it needs to be read alongside how much of
last year's ARR survived into this year.

Point-in-time ARR is not a trend. A single ARR figure says nothing about trajectory. Ask for
it by month or quarter over at least a year, so a one-off spike from a large annual prepayment
does not get mistaken for durable growth.

A GetDeal listing's Deep Dive tab is where a startup's ARR is presented to buyers and investors
alongside the other figures behind it, and the AI analysis report reads those same numbers when it
produces its valuation range and per-section confidence score — it works from what is uploaded and
from public data, not from an audit of the underlying contracts. Where a listing carries the
Verified badge, the key figures including ARR have been checked against source documents rather
than taken as reported, which is exactly the distinction this page is about. Anyone can also run a
company's numbers through the free AI valuation tool at /valuation before listing, to see how a
reported ARR figure translates into a range.