MRR vs ARR

Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) both measure predictable revenue streams in subscription businesses but differ primarily in time scale and application. MRR represents the normalized monthly revenue from all active subscriptions, providing a snapshot of revenue at a specific point in time and enabling businesses to track month-over-month growth trends. ARR, calculated as MRR multiplied by 12 or by summing the annualized value of all subscriptions, offers a longer-term perspective on the company's revenue generation capacity and is typically used for annual planning and when communicating with investors. While MRR captures short-term business momentum, ARR provides a more stabilized view that smooths out seasonal fluctuations.

When managing a SaaS business through rapid growth phases or implementing significant pricing changes, MRR would be more appropriate as it offers greater sensitivity to detect immediate impacts of marketing campaigns, product launches, or changes in customer behaviour. For example, if you've just introduced a new pricing tier or executed a customer win-back campaign, the effects will be more immediately visible in your MRR metrics. Conversely, ARR becomes more valuable when planning strategic initiatives requiring significant investment, communicating with investors, or benchmarking against larger competitors. A SaaS company seeking venture capital would typically emphasize its ARR growth rate and projection, as investors generally prefer this annualized metric to assess the company's scale and long-term sustainability rather than focusing on monthly fluctuations that might obscure the broader trajectory.

Monthly Recurring Revenue

Annual Recurring Revenue

What is it?

Monthly Recurring Revenue (MRR) is the sum of all subscription revenue expressed as a monthly value. For most companies, MRR is the sum of all new business subscriptions and upgrades (sometimes called expansion), minus downgrades (or contractions) and cancelled subscriptions. Though not a Generally Accepted Accounting Principle (GAAP) value, it's the Revenue equivalent used by every SaaS company. MRR is used interchangeably with ARR.

Annual Recurring Revenue (ARR) is the sum of all subscription revenue expressed as an annual value. For most companies, ARR is the sum of all new business subscriptions and upgrades (sometimes called expansion), minus downgrades (or contractions) and cancelled subscriptions. Though not a Generally Accepted Accounting Principle (GAAP) value, it's the Revenue equivalent used by every SaaS company. ARR is used interchangeably with Monthly Recurring Revenue (MRR).

Formula

ƒ Sum(Recurring Revenue irrespective of billing interval expressed as a monthly value)
ƒ Sum(Recurring Revenue irrespective of billing interval expressed as an annual value)

Example

If 10 customers are paying $150 per month, then MRR would be; MRR = $1500 If 7 customers are paying $200 per month, and 3 customers are paying $100 per month, then MRR would be; MRR = $1700

If a customer subscribes to a service with a 1-year renewal agreement for $12,000, then Annual Recurring Revenue would be; ARR = $12,000 If a customer subscribes to a service for $10,000 (with no contract), then Annual Recurring Revenue would be; ARR = $0 If a customer subscribes to a service with a monthly renewal agreement for $1,000 per month, then Annual Recurring Revenue would be; ARR = $1,000 * 12 = $12,000

Published and updated dates

Date created: Oct 12, 2022

Latest update: Oct 12, 2022

Date created: Oct 12, 2022

Latest update: Mar 17, 2025