SaaS ARR (Annual recurring revenue) Guide: Running a Health Check on Your SaaS Business
What does SaaS ARR stand for?
How to calculate your SaaS ARR?

- Your new customers who subscribe to an annual plan
- Your existing customers who upgrade from monthly to annual billing
Why annual billing will make you feel happier?
Annual pross
- You will not feel confused or be up against the wall when the next customer churns – with the annual plan they agree to stay around for a year. Your churn rate is one of the few metrics (+ CAC) you never would like to increase.
- When your customers subscribe to an annual plan but make the payment monthly, you can expect X amount of dollars to be paid on a regular basis. You know how much you can afford to spend monthly on A, B, and C, including hiring new team members or investing in marketing.
- When your customers subscribe to an annual plan and make the payment in advance, you already have the cash in your pocket (actually, in your credit card) and again can plan how you are going to invest those dollars.
Take care of Annual Recurring Revenue as a metric… Why shouldr you do that?

You monitor your SaaS business trends
Like in the case of monthly revenue, you have the opportunity to check your SaaS company’s overall health and reveal how your recurring revenue changes, did you perform better this year or the previous.
You can plan your investments/expenses
When you charge monthly, you don’t know whether 1 or 10 customers will churn or 20 new customers will be acquired. Similar situations of uncertainty make you come in more conservative and modest decisions in your spendings. With your exact ARR data, you can be more confident about your investments in your team, software or service as your money will come back little by little (or maybe already came back with customers’ upfront payment).
Investors want you to know it
If there is only one metric your potential investors care about, the answer is ARR because it reflects how stable and profitable your SaaS company is. If you are new in the market and your only subscription option is monthly, you probably don’t have a metric other than MRR. But ARR is what investors will use to evaluate how powerful your SaaS is.
How to optimize your ARR?
- Decreasing CAC – As we mentioned, ARR is your gross revenue and you should reduce CAC so your net annual profit makes a satisfying amount for you.
- Making a minimum discount – No one says the more discount you offer for your annual plans, the richer you will become. And no one says 20% annual is the industry discount norm you should follow. Even 10% may be a good motivation for your users.
- Following a strong upselling strategy –Once done wrong, a customer’s first reaction can be that you are a greedy salesperson and care only about grabbing more money. Your upselling offer should be relevant to the situation and directed to users who are likely to accept your idea.
Want your customers to switch from monthly to annual billing? Here are 6 ways to succeed

Don’t hurry to convince
If a customer just signed up for your monthly plan and is yet getting acquainted with your company, don’t push your annual plan immediately. Let them “warm up”, explore your software, experience the benefits and make sure they made the right decision. If you keep in touch with your customers via email you can send your offer at least after 1-2 months of their subscription.
Incentivize your customers
When you want someone to do what you want them to do, you should tell them – what they will receive in return. What’s in for them? In the SaaS industry, two common ways of awakening motivation are to offer a discount at around 20% or 1 more month for free (both are “discounts”, only approaches are different).
Make the upgrade process easy
When you visit pricing pages of popular SaaS websites, you will see something like “Upgrade anytime”, i.e. a customer doesn’t have to contact the support team or wait until the end of the month to change the billing model or your “Switch to annual” offer is not available for a limited time. Maybe your customer is not ready for the change now but can consider it after overcoming some minor challenges.
Let them pay monthly
Your customers choose an annual plan but pay monthly. What’s the best part? You have regular, not one-time revenue flow and your customer will not complain that he can’t afford big payment upfront. Ok, now you know – your customer will not churn tomorrow and your customer knows – he will not pay extra money like monthly subscribers mostly do.
List the benefits clearly
As we mentioned above, creating incentives is key but how about expressing them in a comprehensible and enticing way? Mention about the special discount they will receive (and will save dollars!), tell them how exhaustive it is for the financial department to deal with invoices, let them know how the long-term usage helps reach more tangible results.
Bring examples
What do your previous customers tell about the long-term usage of your software? Did annual subscription make their business life easier or how did it improve their online performance? Not that you don’t just “praise” your software’s features like in general but showcase why one should be committed to it for at least a year. Use testimonials and case studies focusing on why months are not enough.
How to talk to your customers on monthly to annual shift? Follow this email example
[Subject line:
Hello, [name].
You’ve been using our software for more than [number] months and we’d like to thank you for choosing our services.
Do you enjoy our [e.g. email marketing automation] software? Have you already experienced tangible improvements in your overall marketing performance?
Well, acknowledging how essential consistency is in your email marketing efforts, we want you to have a look at our annual billing option. You may ask “What should I gain if I choose annual billing over monthly?”. Find the answers below:
- You will save 15% [e.g. $200] per year.
- Activities like lead nurturing, sending updates to subscribers, asking your customers for feedback require constant email flow – you will be doing all of this throughout the year.
- And the best part: You have the opportunity to pay again on a monthly basis (no big upfront payments!)
Happy emailing!
Regards,
[name, position]]
If you’d like to use this email, that’s totally fine. Just note that you should apply the necessary changes according to your software and business. Our aim is to emphasize the key points of email structure – how to start, how to continue, how to finish, what tone of voice to use.