When managing a Shopify app, keeping track of financial health is crucial for sustainable growth and planning. One key metric that offers valuable insight into your app’s financial performance is the Annual Run Rate (ARR). In simple terms, ARR provides a snapshot of your expected annual revenue based on current performance. This metric is especially important for Shopify App Developers as it helps in forecasting revenue, planning for growth, and understanding the financial stability of your app.
What is Annual Run Rate?
Annual Run Rate is a financial metric that estimates your app’s yearly revenue based on current monthly performances. It’s calculated by taking the total of 12 times your current Monthly Recurring Revenue (MRR) plus your current Annual Recurring Revenue from subscriptions. In formula terms, it looks like this:
ARR = (12 x MRR) + Annual Recurring Revenue
Annual Recurring Revenue is determined by adding up all active annual subscriptions.
Why ARR Matters for Shopify App Developers
ARR is crucial for several reasons:
- Forecasting and Planning: It allows developers to project future revenue, aiding in strategic planning and investment decisions.
- Financial Health: ARR gives a clear picture of the app’s financial performance, highlighting growth trends or potential issues.
- Investor / Acquisition Interest: For those seeking investment / acquisition, a strong ARR can make your app more appealing to potential investors / acquirers.
How We Calculate ARR at SaaS Insights
At SaaS Insights, we calculate ARR by combining 12 times the current MRR with the total of all active annual subscriptions. This method includes adjustments for credits and plan downgrades to provide a more accurate representation of actual revenue. While the total ARR might sometimes appear less than the sum of all active subscriptions, it offers a realistic view of your revenue, accounting for various factors affecting your earnings.
Variations
Depending on you use case you may want to adjust how your ARR value is calculated. To change which method is used, click the Variations button and select your preferred algorithm.
Transactions (Default)
ARR based upon confirmed 30-day and Annual subscription transactions.
Active Subscriptions
ARR based upon active subscriptions. Active subscriptions includes customers that have subscribed to a plan but yet to pay their bill, as well as paying customers. As revenue is not confirmed, it’s possible that figures here do not fully match actual recorded revenue.
Transactions + Usage Charges
Includes confirmed usage charge transactions for the previous 30-days with 30-day and Annual subscription transactions. This is especially useful when usage charges are common.
Active Subscriptions + Usage Charges
ARR based upon active subscriptions + confirmed Usage Charges. Active subscriptions includes customers that have subscribed to a plan but yet to pay their bill, as well as paying customers. As revenue is not confirmed, it’s possible that figures here do not fully match actual recorded revenue. This is especially useful when usage charges are common.
Additional Insights
To help you build a more detailed financial picture consider the following metrics also available from SaaS Insights:
- Monthly Recurring Revenue: Project your reliable monthly revenue.
- Annual Revenue: Understand your total revenue over a year.
- Annual Revenue Per User: Measure revenue generated per user annually for deeper insights.
- Usages Charges: Revenue generated due to once off charges.
Try SaaS Insights for Free
Interested in exploring these insights for your Shopify app? Sign up for a 14-day free trial at saasinsights.com/register. Trial users gain full access to our Metrics & Analytics Plan, allowing you to dive deep into your app’s performance and uncover valuable insights to drive growth.
This ARR metric, along with a suite of other metrics, is available to all customers on the Metrics Plan, offering a comprehensive view of your app’s financial health and performance.
By understanding and monitoring your Annual Run Rate through SaaS Insights, you can navigate your app’s growth with confidence, making data-driven decisions to ensure long-term success.