ARR vs MRR: What's the Difference?

The short answer

MRR (Monthly Recurring Revenue) is the contracted subscription revenue you expect to repeat each month. ARR (Annual Recurring Revenue) is the same figure on an annual scale: ARR = MRR × 12. Neither is more 'correct' — they answer different questions.

MRR answers 'how are we doing right now?'. It is sensitive enough to reveal the impact of a pricing change, a churn spike or a new campaign within weeks. ARR answers 'how big is this business?'. It smooths monthly noise and gives boards, investors and planning cycles a stable number to anchor on.

When to use which

The practical split is by audience and cadence. Operating teams — growth, product, customer success — should live in MRR because their decisions are monthly. Finance, the board and investor updates run on ARR because their cycles are annual.

Products sold mostly on monthly plans naturally think in MRR. Companies selling annual enterprise contracts often report ARR first, since a single contract signed in one month would otherwise distort MRR badly.

• MRR: campaign, pricing, capacity and churn decisions.
• ARR: valuation, annual planning, hiring plans and board reporting.
• Use both — never mix periods, e.g. comparing monthly CAC to annual revenue.

The mistakes that distort both

Three errors account for most broken recurring-revenue reporting. First, booking the full value of an annual contract in the month it was paid — this spikes MRR and makes the trend meaningless. Normalise instead: annual value / 12.

Second, including one-off revenue. Setup fees, training days, consulting and one-off licence sales are real revenue, but they are not recurring, so they belong outside both MRR and ARR.

Third, tracking only the total. Break MRR into New, Expansion, Contraction and Churned. Net New MRR = New + Expansion − Contraction − Churned is where growth quality actually shows up — and pairing it with NRR tells you how much of the growth comes from existing customers.

Worked example

A SaaS has 400 customers on an $80/month plan and 100 customers on a $1,200/year plan. Monthly plans: 400 × 80 = $32,000. Annual plans normalised: 100 × (1,200 / 12) = $10,000. MRR = $42,000, so ARR = 42,000 × 12 = $504,000.

If the same month also produced $6,000 of onboarding fees, that stays out of both figures. Run your own numbers with the MRR Calculator and the ARR Calculator.