You would think that just ARR/4 would be able to predict next quarter's revenues but I have seen some cases where that is not that case. Even assuming some kind of attrition (~2% annual), you still get quite a bit of delta - what could be the reason behind this?
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What is ARR? How is it different from revenue?
If talking run-rate, ARR is typically the most recent month's revenue annualized. This is most relevant for subscription businesses as the month's revenue is close to "locked in". Any delta between ARR/4 and next quarter's revenue is usually growth in monthly revenue. Any delta between the revenue for the month used to calc ARR and the three months of the following quarter will be amplified given you are multiplying by 4.
Aside from the above, another explanation could be that ARR is a subset of total revenue. There could be non-recurring revenue such as set up fees, other one-time services, etc.
^ This. I would also add that churn may occur in lumpy ways. Lots of companies in subscription contracts will break off at a specific month/quarter so that's when the delta might fragment.
if we're talking SaaS you have Annualized Recurring Revenue (or revenue in general) being a lagging / trailing indicator due to revenue recognition principles (look at how chunky deferred revenue is as one indicator). So you'd look at billings as the leading indicator.
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