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 a key performance indicator (KPI) that represents the total predictable, recurring revenue a subscription-based business expects to generate every month from its active customers. It is calculated by normalizing all subscription income—regardless of the billing cycle (monthly, quarterly, or annual)—into a consistent monthly figure. MRR is a vital metric for Software-as-a-Service (SaaS) and other subscription models, providing an immediate and granular view of financial health, growth trajectory, and stability. Critically, MRR excludes all non-recurring revenue, such as one-time setup fees, consulting charges, or hardware sales, focusing solely on the reliable, repeatable income stream.
Annual Recurring Revenue (ARR) is a key financial metric representing the value of a business's repeatable, predictable subscription income normalized over a 12-month period. It quantifies the expected yearly revenue a subscription business, particularly those with contracts of a year or longer, can count on from its current customer base. The metric is calculated by annualizing all active, contractually committed subscriptions, excluding one-time fees, professional services, or variable usage charges. ARR is crucial for long-term forecasting, capital allocation, and business valuation, as it highlights the stability and scale of the subscription revenue stream.
Who is it for?
Categories
Formula
Example
If 10 customers are paying $150 per month, then MRR would be: MRR = $1,500 If 7 customers are paying $200 per month, and 3 customers are paying $100 per month, then MRR would be: MRR = $1,700
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: Sep 25, 2025
Date created: Oct 12, 2022
Latest update: Sep 25, 2025