ARR / MRR (Recurring Revenue)

What they are

MRR (Monthly Recurring Revenue) is the predictable revenue your subscription business will earn this month, assuming no one new joins and no one cancels. Add up the monthly value of every active subscription. That’s MRR.

ARR (Annual Recurring Revenue) is the same thing scaled to a year. Either MRR × 12 (the quick version) or the sum of every active annual contract (the precise version, used when most contracts run on yearly terms).

Metric	What it measures	When to use it
MRR	Recurring revenue this month	Monthly billing, SMB SaaS, consumer subscriptions
ARR	Recurring revenue this year	Annual contracts, mid-market and enterprise SaaS, investor conversations

Pick the one your sales motion uses. A consumer app with mostly monthly subscribers reports MRR. An enterprise SaaS company selling annual contracts reports ARR. Mixing them is the source of most “we 12בd our revenue” claims.

What they are NOT

What ARR / MRR actually is	What people mean it as
Recurring revenue only	Total revenue
Net of cancellations	Gross bookings
Forward-looking under steady state	A historical roll-up of cash collected

One-time setup fees, professional services, and one-off implementation work do not count toward ARR or MRR. They’re real revenue, but they’re not recurring, and including them inflates the metric in a way investors will catch.

Worked example

A SaaS company has:

• 100 customers on the $50/month plan
• 30 customers on the $200/month plan
• 5 customers on a $1,200/year annual plan

MRR calculation:

• 100 × $50 = $5,000
• 30 × $200 = $6,000
• 5 annual customers / 12 = $500
• MRR = $11,500

ARR calculation:

• MRR × 12 = $11,500 × 12 = $138,000

If the company also closed $20K in one-time setup work this quarter, that $20K does not get added to ARR. It shows up in total revenue, but ARR stays at $138K.

Common mistakes

1. Mixing in one-time revenue. The single most common mistake. Setup fees, services, and add-ons that don’t recur should not feed into ARR. Many founders include them to make the number look bigger, then get embarrassed during diligence.

2. Counting bookings, not billing. A $120K contract signed today but invoiced quarterly is $120K in ARR, not $480K. The metric is annualized recurring, not “what we sold this quarter × 4.”

3. ARR / 12 ≠ this month’s revenue. A churn-heavy month or a big annual upsell can make actual cash collected diverge sharply from ARR÷12. Use MRR if monthly cash is what you care about.

4. Reporting ARR without churn. “$1M ARR” with 8% monthly churn is a different business than “$1M ARR” with 1% monthly churn. The ARR number alone tells you very little. See Churn glossary.

Further reading

• David Skok, SaaS Metrics 2.0. Where the modern ARR/MRR/churn vocabulary comes from.
• Churn glossary. The number that tells you whether your ARR is real or leaking out the back.
• LTV glossary. What ARR / MRR per customer turns into once you factor in retention.