Committed annual recurring revenue (committed ARR or CARR) is one of the most useful metrics for recurring revenue or subscription businesses. Because it sits at the intersection of sales commitments, customer retention, and financial planning, it offers a clearer picture of future revenue than standard ARR does.

When it’s tracked correctly, committed ARR helps finance, revenue, and leadership teams understand how confident they can be in the year ahead. One consulting firm found that nearly 50% of its software-as-a-service (SaaS) clients use committed ARR as their primary forecasting metric.

Below, we’ll explain what committed ARR is, how it differs from booked and recognized ARR, and how teams across industries use it to improve forecasting, planning, and performance.

What’s in this article?

• What is committed ARR?
  
• How is committed ARR calculated?
  
• How does committed ARR differ from booked ARR and recognized ARR?
  
• What commercial terms and customer commitments contribute to committed ARR?
  
• How does committed ARR improve business performance?
  
• What complications can arise while tracking committed ARR?
  
• How should finance and revenue teams work with committed ARR?
  
• How Stripe Billing can help
  

What is committed ARR?

Committed annual recurring revenue is the amount of money that customers have contractually agreed to pay a business over the next year. It includes active subscriptions you’re already billing for, plus signed contracts that haven’t started yet, minus any revenue you know you’ll be losing.

How is committed ARR calculated?

To calculate committed ARR, start with what’s live today. Then, adjust for what’s been contractually decided about the future.

Here are the steps:

• Begin with the annualized recurring revenue from all active subscriptions. This establishes your baseline. Include only recurring revenue: one-time fees, usage-based charges without minimum commitments, and revenue from services don’t belong in committed ARR.

• Add the full annualized value of all new subscription contracts that have been signed but haven’t started yet. Then, add any incremental recurring revenue from contractually committed expansions or upgrades.

• Subtract the annualized value of customers who have formally notified you they will not renew (i.e., known churn). Also subtract any signed downgrades or reductions in scope that will take effect in the future.

How does committed ARR differ from booked ARR and recognized ARR?

While some recurring revenue metrics sound similar, they answer different questions about timing, certainty, and financial reality. Each of them has a place in a business’s books.

Here are their definitions and important distinctions:

• ARR: This reflects the annualized value of active subscriptions. It shows the recurring revenue run rate of the business as it exists today.

• Recognized ARR: As with ARR, this is a live metric. It focuses on revenue that’s currently being earned under revenue recognition accounting standards. It includes only subscriptions that are actively delivering value, which makes it the most conservative view of recurring revenue.

• Booked ARR: Booked ARR captures the annualized value of all signed contracts. As soon as a deal is closed, its full recurring value is included here, even if the revenue won’t be recognized until later. Booked ARR can overstate reality if deals stall or fall through.

• Committed ARR: Committed ARR sits between booked and recognized ARR. It includes signed contracts and future expansions that are contractually committed but removes revenue from customers who have already signaled that they’ll leave or downgrade.

Together, these metrics create a timeline: recognized revenue shows the past and present, ARR shows the current run rate, and committed ARR shows what’s already been secured for the future.

What commercial terms and customer commitments contribute to committed ARR?

Customer agreements shape committed ARR. The metric includes only revenue that’s contractually locked in.

Here’s what counts:

• Signed subscription agreements: Any executed subscription contract contributes to committed ARR, even if the service start date is in the future.

• Renewed or multiyear contracts: Contracts that include auto-renewal clauses or signed renewal agreements are included in committed ARR. Multiyear deals also contribute to committed ARR on an annualized basis. Typically, only the next 12 months of recurring revenue are included to keep the metric consistent.

• Contracted expansions and add-ons: Upsells, additional seats, feature upgrades, and new modules should be included as incremental committed ARR as long as the customer has formally agreed to purchase them.

• Minimum spend or volume commitments: If a contract includes a recurring minimum commitment, that can be included in committed ARR. Usage above that minimum should be excluded unless it’s contractually fixed.

• Confirmed churn and terminations: Customers who have provided formal notice of nonrenewal or early termination should be removed from committed ARR.

• Signed downgrades: If a customer has formally decided to reduce scope or pricing at a future date, the corresponding decrease should be factored into committed ARR.

How does committed ARR improve business performance?

Committed ARR strengthens performance by signaling where the business is headed. It turns signed customer intent into something operators can plan around with confidence.

Here’s what it can do:

• Improve revenue predictability: Committed ARR shows recurring revenue that’s already contractually secured. This makes SaaS revenue forecasts more stable and reduces reliance on best-case assumptions.

• Support good planning: Committed ARR lets teams plan hiring, infrastructure, and operating spend more accurately, because they know how much they can spend.

• Discover risks earlier: Changes in committed ARR can reveal problems before they show up in recognized revenue. A slowdown in commitments or an upcoming churn increase can spur needed intervention.

• Strengthen stakeholder confidence: A growing committed ARR demonstrates that customers are willing to make binding commitments. Businesses can draw on this credibility with investors, boards, and internal leadership.

• Encourage durable growth: Committed ARR tracks long-term customer value rather than short-term wins. Teams that focus on this metric tend to improve retention and contract structures and to expand more sustainably.

What complications can arise while tracking committed ARR?

As with all metrics, committed ARR can be complex. Work within its limits so it doesn’t throw you off course.

Be mindful of the following:

• Not all contracts become revenue on schedule: Signed deals can be delayed by implementation, procurement, or customer readiness. Committed ARR assumes execution so monitor gaps between commitment and going live.

• Early churn can distort confidence: Customers sometimes exit earlier than expected. Committed ARR should be paired with analysis of historical churn behavior to stay realistic.

• Definitions vary across companies: Committed ARR isn’t a standardized financial metric. Different teams treat renewals, expansions, or usage commitments differently, which can make comparisons misleading without context.

• Committed ARR isn’t a reporting tool: It’s a planning and forecasting tool, not a substitute for financial reporting. Decisions should still be anchored to actual revenue performance.

• Overemphasis can encourage risk: If teams refine too aggressively for committed ARR, they can end up with strict contract structures that drive away customers. Healthy use balances commitment with customer fit.

How should finance and revenue teams work with committed ARR?

Committed ARR can be very helpful for finance and revenue teams. It can connect sales activity, customer behavior, and planning decisions in a single shared view.

Here’s how to use it:

• Update it continually: Committed ARR should change as soon as contracts are signed, renewals are secured, downgrades are agreed, or churn is confirmed.

• Tie it to contract data: Committed ARR is most reliable when it pulls straight from executed agreements. Connecting customer relationship management (CRM), billing, and subscription systems keeps numbers aligned.

• Track it alongside ARR and recognized revenue: Reports should show committed ARR, current ARR, and recognized revenue together. Seeing all three helps teams understand how commitments convert to real revenue over time.

• Align incentives: Use committed ARR as a performance criterion for sales and customer teams. Including churn and downgrades in your metrics helps you push towards revenue durability.

• Use it to pressure-test plans: Finance teams can check the affordability of hiring plans, spend increases, and growth targets by comparing them to committed ARR.

Comment Stripe Billing peut vous aider

Stripe Billing vous permet d’émettre des factures et de gérer vos clients comme vous le souhaitez, que ce soit pour une facturation récurrente simple, une facturation à l’utilisation ou des contrats négociés. Commencez à accepter des paiements récurrents dans le monde entier en quelques minutes, sans codage, ou créez une intégration personnalisée à l’aide de l’interface de programmation de formulaires d’inscription (API).

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