Help Center / Revenue Compliance

ARR Tracking and Reporting

Annual Recurring Revenue (ARR) is a critical metric for subscription-based and SaaS businesses. It represents the predictable revenue you can expect to receive from existing contracts over one year. Light provides native ARR tracking, automatically calculating and reporting this metric from your subscription agreements.

Understanding ARR

Annual Recurring Revenue is calculated by taking the monthly recurring revenue (MRR) and multiplying by 12. It's particularly important for companies with:

  • SaaS or cloud-based products billed annually or monthly
  • Subscription services with recurring contracts
  • Support and maintenance contracts renewed annually
  • Professional services delivered under recurring service agreements

Unlike one-time revenue, ARR provides visibility into predictable, recurring cash flows. It's a key metric for business valuation, cash forecasting, and investor relations.

ARR formula and calculation

ARR = Monthly Recurring Revenue × 12

Light automatically calculates MRR from your subscription contracts:

  • Sum all active subscription contracts in a period
  • Exclude one-time payments and usage-based amounts
  • Account for billing frequency (annual, monthly) and normalize to monthly
  • Exclude churned contracts after their end date
  • Consider contract line value after discounts and before taxes

For example, if you have:

  • Contract A: EUR 1,000/month
  • Contract B: EUR 5,000/year (EUR 416.67/month)
  • Contract C: Churned (ended)

Your MRR = EUR 1,416.67, therefore ARR = EUR 17,000.

Tracking ARR over time

ARR changes as contracts are added, renewed, or churned. Light tracks these movements:

New ARR is revenue from new contracts signed in the current period that had no prior contract value.

Expansion ARR is the incremental revenue from existing customers through upsells or additional purchases.

Contraction ARR is revenue reduced by existing customers through downgrades (price or quantity decreases).

Churn ARR is revenue lost from contracts that ended.

Your net ARR growth = New ARR + Expansion ARR - Contraction ARR - Churn ARR

Good to know: Tracking these components separately provides insights into whether growth comes from new customers, existing customer expansion, or churn reduction. Light also derives net revenue retention (NRR) and gross revenue retention (GRR) from these movements.

Configuring ARR tracking in Light

ARR tracking is calculated automatically from your contracts:

  1. Navigate to Revenue & Invoicing → Contracts
  2. Verify that each contract has:
    • A customer, entity, and currency
    • Billing start date (and end date, if applicable)
    • Contract lines for recurring products with a billing frequency (monthly, quarterly, half-yearly, or yearly)
  3. Publish the contract — Light automatically aggregates its recurring contract lines into MRR and ARR

One-time contract lines are excluded from MRR and ARR. See ARR and SaaS metrics for the contract fields involved.

ARR reporting and dashboards

Light provides multiple views of ARR data on the SaaS Metrics dashboard:

Metric charts and stats show:

  • Current ARR and MRR
  • New, expansion, contraction, churned, and net new MRR for the period
  • Net revenue retention (NRR) and gross revenue retention (GRR)
  • Average revenue per account (ARPA) and active customers
  • Revenue metrics such as billed, recognized, and deferred revenue, outstanding AR, and cash collected

Customer drilldown breaks each period down to customer level, classifying every customer as new, expansion, contraction, churn, or retained.

AI summaries generate a natural-language executive summary across the charts and stats you select.

You can save your own charts and arrange them into a personalized dashboard view.

Multi-currency ARR reporting

For multinational companies, ARR can be reported in local currency (per entity) or group currency:

  1. Open the SaaS Metrics dashboard
  2. Select your reporting currency (local or group)
  3. Light converts each contract's MRR using system exchange rates captured as of the contract's billing start

Because rates are fixed at the contract's billing start, historical MRR and ARR figures stay stable — later exchange rate changes do not retroactively shift past periods.

Tip: Report ARR in your group currency for board/investor presentations and in local currency for subsidiary-level operational reporting.

Handling contract changes mid-period

When customers upgrade, downgrade, or churn mid-period, Light adjusts ARR calculations:

Upgrades (expansion): Increase the price or quantity on the contract's lines, or add new recurring lines. Light classifies the incremental MRR as expansion.

Downgrades (contraction): Reduce the price or quantity on the contract's lines. Light classifies the reduction as contraction.

Churn: Terminate the contract. Light removes its MRR from the termination date.

Light automatically recalculates ARR as these contract changes are published.

ARR vs. GAAP revenue recognition

It's important to note that ARR differs from recognized revenue under IFRS 15:

  • ARR is a management metric representing the full contract value annualized
  • Recognized revenue is what appears on your P&L following accounting rules

For example, if a customer pays EUR 12,000 upfront for a 12-month SaaS contract:

  • ARR = EUR 12,000
  • Month 1 recognized revenue = EUR 1,000 (using deferred revenue release)
  • Total Year 1 recognized revenue = EUR 12,000

Light reports both metrics separately: ARR for business management and deferred revenue for financial reporting compliance.

Integration with forecasting and planning

ARR data feeds into Light's budget and scenario planning features:

  1. Use historical ARR and growth rates to build sales forecasts
  2. Model impact of different churn assumptions
  3. Stress-test revenue impact of pricing changes
  4. Forecast cash collections based on billing patterns

See Budget Scenarios for detailed forecasting capabilities.

Best practices for ARR tracking

Define recurring clearly: Establish which contracts qualify as "recurring" (typically 12+ month terms with auto-renewal).

Clean data discipline: Ensure all subscription contracts have accurate start/end dates and billing frequency.

Cohort tracking: Segment ARR by acquisition channel, customer segment, or geography to identify high-value customer sources.

Churn monitoring: Track churn rate monthly and investigate spikes in ARR reduction.

Reconciliation: Monthly, reconcile reported ARR to AR aging report and contract management system.

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