What is recurring revenue?
Recurring revenue is the predictable, contractual portion of revenue a business expects to receive on a continuing basis: subscriptions, SaaS contracts, maintenance, retainer arrangements. It is the foundation of the SaaS valuation model: predictable cash flow streams trade at significantly higher multiples than transactional or project revenue.
Sub-metrics derived from it
- ARR (Annual Recurring Revenue): annualised value of active subscriptions at a point in time.
- MRR (Monthly Recurring Revenue): ARR ÷ 12, useful for monthly cohort analysis.
- Net New ARR: New + Expansion − Contraction − Churn.
- Net Revenue Retention (NRR): recurring revenue from an existing customer cohort, including expansion and churn: top-quartile SaaS prints 120%+.
What counts (and what doesn’t)
- Counts: SaaS subscriptions, software maintenance, recurring managed-services contracts with auto-renewal, recurring usage-based revenue with a committed floor.
- Does NOT count: one-time setup or implementation fees, professional services, pilot revenue without a renewal commitment, transactional / GMV-based revenue without recurrence.
Recurring revenue vs. GAAP revenue
GAAP revenue (IFRS 15 / ASC 606) is recognised rateably over the service period, so this period’s GAAP revenue reflects subscriptions sold in earlier periods. Recurring revenue is a forward-looking snapshot of the run-rate. Both are useful; they answer different questions.
Why investors care
Public SaaS companies trade at 5–15× ARR depending on growth, NRR and operating margin (post-2022 reset). The premium reflects revenue predictability: recurring revenue compounds quarter after quarter and turns the customer base into a financial asset rather than a series of one-time sales.
Do: publish ARR alongside GAAP revenue in every board pack, with a New/Expansion/Contraction/Churn waterfall.
Don’t: count one-time fees or unrenewed pilots in ARR: investors will discount your number in due diligence and lose trust.
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