Annual run rate: Everything you need to know

• ARR to set goals

Companies can make use of ARR forecasts to set a distinct goal for their sales team. Based on a month’s or a quarter’s performance in the revenue department, the sales department can plan their strategies accordingly to make sure they keep up with the ARR figures till the end of the year, excluding the external factors that may affect sales. 

• ARR to set new expectations for new companies

Another way to look at ARR in a company that is newly established is to look at it as a new level to catch up to. For the companies that are still small and have increasing revenue as they grow, ARR helps them to set new goals every year for sales. 

• Do not use ARR with investors

It is but natural for the company to be impressed about their monthly or quarterly sales and use fashionable ARR numbers to convince the investors. Although, this is a bad idea because the investors do not believe in predicted figures and they know how these numbers can be deceptive. 

• Don’t use ARR on budgeting

As discussed earlier, ARR calculations can have various factors that will skew your results. And when we talk about budgeting, it needs to be as accurate as possible. Hence, you cannot plan your budget high just because you have impressive ARR numbers this year. Keep in mind there are seasonal factors too that affect the sales revenue.