ARR Per FTE

ARR stands for Annual Recurring Revenue, which is the value of the recurring revenue of a company’s term subscriptions normalized for a single calendar year. It’s a key metric in subscription-based businesses.

FTE stands for Full-Time Equivalent, a unit that indicates the workload of an employed person in a way that makes workloads or class loads comparable across various contexts.

ARR per FTE, therefore, is a measure of the annual recurring revenue generated per full-time equivalent employee. This can be a useful measure of productivity or efficiency, particularly in service industries or other businesses where human capital is the primary resource.

For example, if a software company has an ARR of $1 million and employs 20 full-time equivalent employees, its ARR per FTE would be $1,000,000 / 20 = $50,000. This indicates that each full-time equivalent employee contributes to $50,000 of annual recurring revenue.

It is used to benchmark and measure the efficiency of the business model, especially in a SaaS (Software as a Service) company. It allows businesses to monitor if the increase in hiring is proportional to the increase in revenue, thus ensuring effective scaling.