How Should Your SaaS Company Measure ARR with Usage-Based Pricing? A Look at Public Company Practices

Introduction

For SaaS companies, defining Annual Recurring Revenue (ARR) is crucial for tracking growth, setting investor expectations, and benchmarking against competitors. But if your SaaS business has a usage-based pricing model, measuring ARR becomes tricky—should you include variable revenue or stick to contract commitments?

To help you navigate this challenge, I analyzed how 14 publicly traded, volume-based SaaS companies define ARR. Here’s what I found.

Key Takeaways from Public SaaS Companies

1. Not All Companies Report ARR

Some companies with usage-based pricing, like Snowflake, Twilio, AWS, Five9, and Fastly, don’t report ARR at all. Instead, they use alternative metrics like revenue run rate, billings, or net expansion rate to measure business performance.

2. Most Companies with Variable ARR Include It In the ARR Metric

Companies like Datadog, Couchbase, MongoDB, HashiCorp, JFrog, and DigitalOcean incorporate variable revenue in their ARR calculations. However, Dynatrace, Elastic, and Rubrik exclude usage-based components, likely for predictability.

3. Three Common ARR Calculation Approaches

• Simple Annualization (DigitalOcean, JFrog): Multiply last month’s revenue by 12. Easy to report but volatile in seasonal businesses.
• Hybrid Approach (Datadog, MongoDB, HashiCorp, Couchbase): Use a mix of contracted revenue and recent usage trends, offering a more stable ARR estimate.
• Exclude Usage-Based Revenue (Dynatrace, Elastic): Focus solely on committed revenue for predictability but at the risk of understating potential growth.

Which ARR Method Should You Use?

For a growing SaaS business, choosing the right ARR method depends on your business model and investor expectations:

✅ If your customers consistently exceed contract minimums, consider a hybrid approach that smooths out variability while reflecting real growth.

✅ If seasonality is a concern, a longer-term usage average (e.g., 90 days x 4) can help stabilize reported ARR.

✅ If predictability is your top priority, excluding variable revenue ensures a conservative, stable ARR, but may not reflect upside potential.

Final Thought: Align ARR with Your Growth Story

How you define ARR can shape investor confidence and strategic decisions. Whether you follow DigitalOcean’s simplicity, Datadog’s hybrid approach, or Elastic’s predictability-first model, ensure your ARR methodology aligns with your company’s growth trajectory and financial narrative.

Get the Full Report Below

Understanding ARR for usage-based SaaS businesses is critical for financial planning and investor communication. This in-depth 20+ page report analyzes how 14 publicly traded SaaS companies with usage-based pricing define ARR, providing actionable insights on best practices, industry benchmarks, and strategic considerations for your business.

📥 Download the full report now to refine your ARR methodology and ensure your metrics align with investor expectations!