Key takeaways
MRR (monthly recurring revenue) is the subscription revenue a business can expect every month. ARR (annual recurring revenue) is the same figure on a yearly scale, so ARR = MRR × 12. They measure the same thing; the difference is the time frame and who uses it. Early-stage and monthly-billing SaaS companies tend to manage by MRR, while companies selling annual or multi-year contracts usually report ARR.
The formulas are short, but most mistakes come from what goes into them. Here is how to calculate each, what to include and leave out, and how to read the movement behind the headline number.
| MRR | ARR | |
|---|---|---|
| Stands for | Monthly recurring revenue | Annual recurring revenue |
| Formula | Sum of monthly subscription value | MRR × 12 (or annual contract value) |
| Best for | Monthly plans, SMB and self-serve SaaS | Annual contracts, B2B and enterprise SaaS |
| Shows | Short-term momentum, month-to-month changes | Scale, long-term trajectory, valuation |
| Typical audience | Founders and operators | Boards, investors and sales teams |
Add up the monthly value of every active, paying subscription. For annual or multi-year plans, divide the contract value by the number of months it covers.
MRR = (monthly customers × monthly price) + (annual contract value ÷ 12)
Example: 400 customers pay $50 a month and 100 customers pay $3,600 a year.
ARR = MRR × 12. In the example, $50,000 × 12 = $600,000 ARR. Companies that sell annual contracts often build ARR the other way round: add up the annualised value of every active contract. Both methods give the same answer if the inputs are clean.
Useful milestones: $1M ARR is about $83,333 MRR, and $10M ARR is about $833,333 MRR.
Recurring revenue should only contain revenue that repeats on a predictable schedule. Leave out anything else, or the number will overstate the business.
| Include | Leave out |
|---|---|
| Active subscription fees, after discounts | One-time setup or onboarding fees |
| Annual plans at 1/12 of the price per month | Consulting, training and implementation work |
| Recurring add-ons and extra seats | VAT and sales tax |
| Committed minimums on usage contracts | Free trials and unpaid accounts |
| Cancelled customers, from the date they stop paying |
Usage-based fees are a grey area. Many companies count only the committed minimum in ARR and report usage on top, or use a trailing average. Pick one rule, write it down and apply it the same way every month.
A single MRR figure hides a lot. Break the change each month into five parts:
Example: you start the month at $50,000, add $4,000 new and $1,500 expansion, and lose $500 to downgrades and $1,000 to cancellations. Net new MRR is $4,000, so you end at $54,000 MRR ($648,000 ARR), an 8% monthly rise.
If churn is eating your growth, measure it properly with the Churn Rate Calculator and compare it with the ranges in our SaaS churn benchmarks guide.
ARR is an operating metric, not an accounting one. Recognised revenue under GAAP or IFRS follows when the service is delivered, and cash follows when customers pay. A customer who pays $36,000 upfront adds $36,000 of cash, $3,000 of MRR and $36,000 of ARR, but only $3,000 of recognised revenue in the first month. Keep the three apart when you model runway; our burn rate guide shows how.
Pushing customers to annual billing lifts cash today without changing ARR. Use the Annual Plan Discount Calculator to see how much discount you can offer, and the Customer Lifetime Value Calculator to see what each customer is worth over time. For the wider picture, read SaaS metrics in plain English.
Yes, for most SaaS businesses. ARR is the annualised version of MRR. Companies with mostly annual contracts may calculate it directly from contract values, but the result should match MRR × 12.
Divide the annual price by 12. A $3,600 annual plan adds $300 of MRR, even though the customer paid all of it upfront.
ARR only counts recurring subscription revenue. Run-rate revenue takes total revenue from a recent period, including one-off sales, and multiplies it to a year, so it is usually higher and less reliable.
Use the price the customer actually pays. A $100 plan with a permanent 20% discount is $80 of MRR. Temporary discounts should be reflected while they apply.
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