If you’ve never had the pleasure of running a SaaS company, let me paint you a picture. Imagine a world where your entire business revolves around subscriptions, your customer success team doubles as both your sales engine and your frontline defense, and your biggest existential threat isn’t a bad quarter—it’s churn. Welcome to SaaS, where every day is a high-stakes game of financial Jenga played with venture capital money.
But here’s the kicker: SaaS is exhilarating. It’s the Wild West of recurring revenue, a constant puzzle that demands you be part strategist, part daredevil. Unlike traditional businesses that close a sale and move on, SaaS is about cultivating relationships—ones that, if handled correctly, translate into long-term revenue streams. ( I have another blog about the right way to build professional and B2B relationships- spoiler alert, its not sending them sales copy through LinkedIn the first time you connect with them) Screw it up, though, and your revenue can vanish faster than a poorly managed freemium model.
And that brings me to one of the most underappreciated yet absolutely critical metrics in SaaS: CARR. Never heard of it? Buckle up—this one’s a game-changer.
CARR: Your SaaS Revenue Crystal Ball
If you’re serious about scaling a SaaS business, you need to know CARR (Committed Annual Recurring Revenue) inside and out.
Most SaaS folks already obsess over ARR (Annual Recurring Revenue)—that all-important number that tells you how much revenue you’re generating from active subscriptions. But CARR? That’s ARR’s smarter, more forward-thinking sibling.
CARR doesn’t just tell you what you’re making today—it tells you what’s already locked in for the future. It includes:
✅ New customers who’ve signed multi-year agreements but haven’t started paying yet.
✅ Renewals already secured for next year.
✅ Upsells and cross-sells contractually committed but not yet billed.
Think of ARR as your company’s current bank balance and CARR as the checks in the mail. One tells you where you stand today, the other gives you a damn good idea of where you’ll be tomorrow.
ARR vs. CARR: The Dynamic Duo of SaaS Metrics
If ARR is the scoreboard, CARR is the playbook.
- ARR is your officially recognized, recurring revenue from subscriptions.
- CARR is future revenue that’s already contractually committed but hasn’t hit the books yet.
This matters when:
📈 Forecasting growth: Investors don’t just want to know where you are today—they want proof of where you’re going.
💰 Managing cash flow: Knowing what revenue is already locked in helps you make smarter hiring and scaling decisions.
🎯 Refining sales strategy: CARR lets your sales and customer success teams see exactly what’s secure and what’s still at risk.
And one small but crucial accounting detail: ARR is GAAP revenue (it can be officially recognized in financial statements), while CARR isn’t. You can’t count CARR as realized revenue, but you sure as hell can use it to make informed, strategic decisions.
How to Calculate CARR (Without Your CFO Yelling at You)
CARR isn’t quite as simple as ARR, but it’s worth the effort. Here’s how you break it down:
1️⃣ Start with ARR – That’s your total recognized recurring revenue from all active subscriptions.
2️⃣ Identify multi-year contracts – Find customers who’ve committed to longer terms but haven’t yet started payments.
3️⃣ Extract revenue from these deals – Add up contractually secured but unbilled revenue.
4️⃣ Determine Total Contract Value (TCV) – Sum up all committed revenue from those multi-year agreements.
5️⃣ Calculate Annual Contract Value (ACV) – Divide TCV by contract length to get the yearly value of those deals.
6️⃣ Sum it all up – Your total annualized revenue from committed contracts = CARR.
Tracking CARR vs. ARR gives you a serious competitive edge.
- If CARR is growing faster than ARR, congrats—you’re locking in future revenue at a healthy pace.
- If CARR is stagnant or shrinking, you’ve got a problem. That’s the warning sign your sales and retention strategies need a hard reset.
Why SaaS is a Game of Financial Chess (And Why That’s Fun)
I keep coming back to SaaS because it’s not just about the tech—it’s about strategy. Every move, from pricing models to contract terms, creates ripples across your revenue today and in the future.
Unlike traditional businesses that sell a product, recognize the revenue, and move on, SaaS is about long-term financial architecture. Every deal is a relationship. Every dollar is recurring. Every contract is a bet on the future.
And that’s where CARR comes in. When you track it alongside ARR, you’re not just counting revenue—you’re building a sustainable, high-growth business.
So, if you’re running a SaaS company, don’t just glance at ARR and call it a day. Track your CARR like a pro. Your investors (and your future self) will thank you.