Limitations of ARR

This question practices how to evaluate a common SaaS metric beyond its surface usefulness. In investment banking interviews, candidates are often expected to understand not just what ARR is, but also when it can be misleading as a forward looking indicator. The key reasoning is that recurring revenue metrics depend on assumptions about customer retention, pricing changes, and stability in recent performance, so interviewers want to see whether you can identify the business risks that make a simple annualized run rate incomplete. It also tests whether you can explain why a metric that is useful for quick revenue visibility may still fail to capture changes in customer behavior or market conditions.