To achieve $1 million in annual recurring revenue (ARR), a company typically needs to meet several key milestones. Here is a breakdown of the numbers and examples of companies that have achieved or are working towards this milestone:
### Key Milestones
1. **Product/Market Fit**: Achieve a product that resonates with the target market and has a clear value proposition.
2. **Customer Acquisition**: Identify and secure a significant number of customers, often around a hundred or more.
3. **Average Contract Value (ACV)**: Ensure that the average revenue per customer is substantial enough to reach $1 million ARR.
4. **Sales Cycle**: Manage the sales cycle to ensure that contracts are secured within a reasonable timeframe, typically 12 months or less.
5. **Churn Management**: Maintain a reasonable churn rate to ensure that the revenue is stable and predictable.
### Examples of Companies
1. **Everbridge**:
– **ARR Calculation**: Everbridge calculates its ARR by taking the subscription revenue from a quarter and multiplying it by 4 to get the annualized number. They exclude non-recurring revenue sources like professional services and perpetual licenses.
– **Example**: If Everbridge’s subscription revenue for a quarter is $250,000, their ARR would be $1 million.
2. **Pardot** (now part of Salesforce):
– **ARR Milestones**: Pardot took about 2⅓ years to reach $1 million ARR based on a $150-$500 Monthly Recurring Revenue (MRR). They then scaled to $10 million ARR within another 2 years.
– **Example**: Assuming an average MRR of $300, Pardot would need 333 customers to reach $1 million ARR.
3. **AvePoint**:
– **ARR Calculation**: AvePoint calculates ARR based on the recurring revenue from term subscriptions, maintenance, and support contracts. They exclude one-time fees and other non-recurring revenue sources.
– **Example**: AvePoint’s ARR could be calculated based on the recurring revenue from their term subscriptions, maintenance, and support contracts, assuming these are substantial enough to reach $1 million.
### Summary
To achieve $1 million ARR, a company needs to focus on securing a significant number of customers with substantial average contract values, managing the sales cycle effectively, and maintaining a stable churn rate. Companies like Everbridge, Pardot, and AvePoint have demonstrated the ability to reach this milestone by leveraging their products and services effectively.
