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Research Report

The ARR Trap

Has your company fallen in the ARR trap?

There is an incessant drive for technology companies to grow annual recurring revenues (ARR)—and for good reason. Recurring revenue streams are more predictable than transactional revenue streams, and more resilient in economic downturns. Perhaps most importantly, investors reward technology providers with fast-growing ARR with higher valuations.

However, companies are creating a big tent for annual recurring revenues—this approach allows the potential for what we call “The ARR Trap”. This paper examines this phenomenon, providing guidance on how to avoid it by covering the following ground:
  • The definition of ARR.
  • Four distinct types of revenue streams.
  • Two major challenges of the ARR trap.
  • TSIA recommendations for avoiding the trap.

Authored By:

Thomas Lah

Executive Director and Executive Vice President, TSIA

Jack Johnson

Vice President, Customer Growth and Renewal Research, TSIA

Publish Date: August 15, 2022

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