Monthly Recurring Revenue and Annual Recurring Revenue compared side by side. Know when to use each and how they drive different business decisions.
MRR is the monthly-normalized recurring value of active subscriptions. This follows the MRR and ARR convention documented by Stripe. It helps track recurring revenue changes over time.
Granular, sensitive to change, and ideal for tracking growth momentum week-over-week and month-over-month.
ARR is MRR multiplied by 12 and represents the annualized run rate of your recurring revenue. It is the standard metric for investor reporting, valuation, and annual planning.
Expresses the same recurring run rate on an annual scale. Multiplying MRR by 12 does not smooth changes.
MRR = Sum of monthly-normalized recurring subscription amountsExample: 100 customers at $50/month + 20 customers at $200/month = $5,000 + $4,000 = $9,000 MRR
ARR = MRR x 12Example: $9,000 MRR x 12 = $108,000 ARR. For a flat recurring contract, divide its recurring value by its length in years. Exclude one-time fees.
Net New MRR = New MRR + Expansion MRR + Reactivation MRR - Churned MRR - Contraction MRRSeparate acquisition, expansion, reactivation, and losses to see what changed. Keep the movement definitions consistent.
| Criteria | MRR | ARR |
|---|---|---|
| Time Horizon | Monthly | Annual (run rate) |
| Relationship | MRR = ARR / 12 | ARR = MRR x 12 |
| Primary Use | Operations, sales tracking, growth monitoring | Investor reporting, valuation, annual planning |
| Volatility | Reflects changes to the recurring run rate | Same percentage changes as MRR |
| Best Stage | Early-stage and growth companies | Series A+ and growth-to-mature companies |
| Valuation Multiple | Not standard (convert to ARR first) | Multiples vary by growth, margins, risk, and market conditions |
| Churn Sensitivity | Very high - shows impact in same month | Same proportional impact as MRR |
| Reporting Cadence | Weekly or monthly dashboards | Quarterly board reports, investor updates |
| Common Mistake | Including one-time fees or services revenue | Treating ARR as actual cash received (it is a run rate) |
The four types below explain new revenue and changes to active accounts. Also track reactivation separately when former customers return.
New MRR
Revenue from brand new customers acquired this month. Compare it with acquisition spending and subsequent retention.
Expansion MRR
Revenue from existing customers upgrading their plan or purchasing add-ons. Shows growth in recurring spending within existing accounts.
Contraction MRR
Revenue lost from existing customers downgrading. Investigate the reasons for lower spending, such as changed needs or budget.
Churned MRR
Revenue lost from customers who canceled their subscriptions entirely. Investigate cancellations alongside account size and customer feedback.
Including non-recurring revenue in MRR
Setup fees, professional services, and one-time charges are not recurring. Including them inflates MRR and creates misleading month-to-month comparisons.
Confusing ARR with actual cash collected
ARR is a run-rate metric, not a cash flow statement. A company with $1M ARR has not necessarily collected $1M in cash. Annual contracts paid upfront affect cash flow separately from ARR.
Counting trials or freemium users in MRR
Free trials and freemium accounts generate no revenue. Only include customers who are actively paying for a subscription.
Using TCV instead of ACV for ARR
Total Contract Value (TCV) for a 3-year deal is not the same as ARR. ARR should reflect the annual recurring value, not the full contract sum.
Use our free MRR/ARR calculator to track recurring revenue, model growth scenarios, and understand MRR components including new, expansion, and churned revenue.
MRR is the monthly-normalized recurring value of active subscriptions. ARR is that run rate multiplied by 12 under the definition used here. They express the same value on different scales, so ARR is not smoother or less sensitive to churn.
MRR is useful for monthly operating reviews and revenue movements. ARR is useful for annual planning and reporting. Either can be tracked at the same frequency; choose the scale your audience uses and define what you include.
ARR is common in SaaS reporting, but investors may also examine monthly movements, retention, and cash collection. Check that companies use comparable ARR definitions before comparing their numbers or valuation multiples.
ARR = MRR x 12. For example, $83,333 MRR is approximately $1 million ARR ($999,996 before rounding). ARR is a run rate, not revenue already earned or cash received over a year. Exclude one-time charges and normalize annual subscriptions to their monthly recurring value.