How To Calculate Cost of Annual Recurring Revenue in Sageworks | Arithmix

Calculating the cost of annual recurring revenue (ARR) is an important metric for any business that relies on recurring revenue streams. It helps businesses understand the true cost of acquiring and retaining customers, and can be used to inform pricing strategies, sales and marketing efforts, and overall business planning. In this article, we'll explore what ARR is, when it's valuable to calculate, and how to calculate it.

What Is Cost of Annual Recurring Revenue?

Annual recurring revenue (ARR) is the amount of revenue a business can expect to generate from its recurring revenue streams over the course of a year. This includes revenue from subscriptions, maintenance contracts, and other recurring sources of income. The cost of annual recurring revenue (CARR) is the total cost of acquiring and retaining those customers over the same period.

Calculating CARR involves taking into account all the costs associated with acquiring and retaining customers, including sales and marketing expenses, customer support costs, and any other costs associated with maintaining the relationship with the customer. By subtracting CARR from ARR, businesses can determine their net recurring revenue, which is a key metric for understanding the health of their recurring revenue streams.

When Is It Valuable To Calculate Cost of Annual Recurring Revenue?

Calculating CARR is valuable for any business that relies on recurring revenue streams, particularly those that offer subscription-based services or products. By understanding the true cost of acquiring and retaining customers, businesses can make informed decisions about pricing, sales and marketing strategies, and overall business planning.

For example, if a business is spending more to acquire and retain customers than it is generating in recurring revenue, it may need to adjust its pricing or marketing strategies to improve profitability. Similarly, if a business is generating a high net recurring revenue, it may be able to invest more in customer acquisition and retention to further grow its recurring revenue streams.

How to Calculate Cost of Annual Recurring Revenue

Calculating CARR involves taking into account all the costs associated with acquiring and retaining customers over the course of a year. This includes sales and marketing expenses, customer support costs, and any other costs associated with maintaining the relationship with the customer.

To calculate CARR, businesses should start by identifying all the costs associated with acquiring and retaining customers. This may include advertising costs, sales commissions, customer support salaries and benefits, and any other costs associated with maintaining the relationship with the customer.

Once all the costs have been identified, businesses can add them up to determine their total cost of acquiring and retaining customers over the course of a year. This figure can then be subtracted from the business's ARR to determine its net recurring revenue.

It's important to note that calculating CARR is an ongoing process, as the costs associated with acquiring and retaining customers may change over time. Businesses should regularly review their CARR to ensure that they are making informed decisions about pricing, sales and marketing strategies, and overall business planning.

In conclusion, calculating the cost of annual recurring revenue is an important metric for any business that relies on recurring revenue streams. By understanding the true cost of acquiring and retaining customers, businesses can make informed decisions about pricing, sales and marketing strategies, and overall business planning. By following the steps outlined in this article, businesses can calculate their CARR and use it to inform their decision-making processes.

How Do You Calculate Cost of Annual Recurring Revenue in Sageworks

Sageworks itself isn’t naturally geared towards letting you calculate complex metrics like Cost of Annual Recurring Revenue. As an alternative, teams typically use products like Arithmix to import data from Sageworks and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like Sageworks, combine it with data from other systems, and create calculations like Cost of Annual Recurring Revenue.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Cost of Annual Recurring Revenue in Arithmix

Calculating metrics like Cost of Annual Recurring Revenue is simple in Arithmix. Once you've created your free account, you’ll be able to import your Sageworks data, and use it to create natural language formulas for metrics like Cost of Annual Recurring Revenue.

Arithmix is designed to give you the power to build any calculations you want on top of your Sageworks data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.