MRR vs ARR: what is the difference, and which to track
MRR vs ARR: ARR is MRR x 12, the same subscriptions on a yearly scale. The formulas, what never counts, and how both differ from bookings and revenue.
ARR is MRR x 12. Both measure only recurring subscription revenue, at a monthly or yearly scale. Track MRR if most customers pay monthly or you are early, and ARR if you sell annual or multi-year contracts. Neither includes one-time fees, services, or signed-but-unstarted contracts, and neither is the same as the revenue on your income statement.
The difference between MRR vs ARR is only the time scale: MRR is the recurring subscription revenue you earn in a month, and ARR is that same run rate over a year, so ARR = MRR x 12. They show up in every founder update and build-in-public thread, and stuffing the wrong things into them makes a business look healthier than it is.
MRR vs ARR meaning
Monthly recurring revenue (MRR) is the predictable subscription revenue you earn each month. Annual recurring revenue (ARR) is that same run rate over a year. David Skok’s SaaS metrics glossary defines ARR as MRR x 12: the recurring revenue you would collect over the next twelve months if nothing were added and nothing churned.
| MRR vs ARR | |
|---|---|
| Time frame | MRR is one month of recurring revenue. ARR is twelve. |
| Best for | MRR for monthly plans and short-term decisions. ARR for annual and multi-year contracts. |
| Typical users | MRR for early-stage and self-serve SaaS. ARR for B2B and enterprise sales. |
| What they include | The same thing: active recurring subscriptions only. |
- Time frame
- MRR vs ARRMRR is one month of recurring revenue. ARR is twelve.
- Best for
- MRR vs ARRMRR for monthly plans and short-term decisions. ARR for annual and multi-year contracts.
- Typical users
- MRR vs ARRMRR for early-stage and self-serve SaaS. ARR for B2B and enterprise sales.
- What they include
- MRR vs ARRThe same thing: active recurring subscriptions only.
Stripe’s guidance lines up: MRR suits short-term analysis, businesses whose customers are mostly monthly subscribers, and newer companies without much history. ARR is more useful when customers sign multi-year contracts and for longer-term planning.
MRR vs ARR formula
Add up every active subscription at its monthly value. Stripe’s example uses three plans:
MRR = (100 x $10) + (50 x $20) + (30 x $30) = $2,900
ARR = $2,900 x 12 = $34,800- Annual plans count at one twelfth. A $490 yearly plan adds $40.83 of MRR, not $490 in the month it is paid.
- Discounts count at what the customer actually pays.
- Trials and free plans count as zero until they convert.
The MRR calculator does this plan by plan, shows ARR alongside it, and breaks a month into new, expansion, contraction, and churned MRR.
MRR vs ARR example with monthly and annual plans
Say you have 120 customers on a $19 monthly plan and 30 on a $490 yearly plan, and in October one company also pays a $1,500 setup fee.
| Item | Effect on MRR |
|---|---|
| 120 x $19 monthly | $2,280 |
| 30 x $490 yearly, divided by 12 | $1,225 |
| $1,500 setup fee | $0, it does not recur |
| Total | $3,505 MRR, so $42,060 ARR |
- Item120 x $19 monthly
- Effect on MRR$2,280
- Item30 x $490 yearly, divided by 12
- Effect on MRR$1,225
- Item$1,500 setup fee
- Effect on MRR$0, it does not recur
- ItemTotal
- Effect on MRR$3,505 MRR, so $42,060 ARR
October’s bank balance went up by more than $3,505, and that is fine. The setup fee is real revenue. It just tells you nothing about what next month will bring, which is the only question MRR and ARR exist to answer.
What does not count as ARR
a16z lists the most common ways founders inflate ARR. The first is multiplying one month’s total bookings by 12. Two things get swept in that should not be:
- 1Non-recurring fees. Setup, installation, hardware, professional services, and consulting are real revenue, but they do not repeat. a16z says ARR should exclude one-time and professional service fees.
- 2Bookings. A signed contract that has not started yet is a booking, not recurring revenue.
Lifetime deals belong in the same bucket. Selling 200 lifetime licenses in a launch week is a good week of cash, not $X of ARR.
ARR vs revenue vs bookings
These three are the source of most confusion in SaaS reporting. Skok uses a simple example: a one-year contract at $1,000 a month, with six months paid up front.
| Measure | What happens in the example |
|---|---|
| Bookings | $12,000, the full contract value, the day it is signed |
| Billings | $6,000 invoiced in month one, then $1,000 a month from month seven |
| Revenue | $1,000 recognized each month as the service is delivered |
| MRR and ARR | $1,000 of MRR and $12,000 of ARR while the contract is active |
- MeasureBookings
- What happens in the example$12,000, the full contract value, the day it is signed
- MeasureBillings
- What happens in the example$6,000 invoiced in month one, then $1,000 a month from month seven
- MeasureRevenue
- What happens in the example$1,000 recognized each month as the service is delivered
- MeasureMRR and ARR
- What happens in the example$1,000 of MRR and $12,000 of ARR while the contract is active
The money paid in advance but not yet earned sits on the balance sheet as deferred revenue. For a small company the takeaway is simple: cash in the bank, revenue in the accounts, and ARR in a pitch deck are three different numbers, and only the first pays salaries.
MRR vs ARR for SaaS: which to track
If you sell self-serve monthly plans, track MRR. It moves fast enough to show the effect of a launch, a price change, or a churn fix within weeks. Quote ARR only when an audience expects it, such as investors or acquirers, and make clear it is MRR x 12.
If you sell annual contracts, ARR is the natural unit, but watch renewal dates closely. Annual customers churn in lumps when contracts end, so a steady ARR line can hide a renewal problem until it arrives all at once.
Track the movements, not just the total
A single MRR number hides what happened. Stripe breaks it into new, expansion, reactivation, contraction, and churned MRR. Flat MRR can mean a quiet month, or strong sales hiding heavy churn. Net new MRR, new plus expansion minus contraction and churn, is the clearest growth number a subscription business has.
If churn is the movement eating your growth, compare it with what a good SaaS churn rate looks like for your price point. And if you share MRR in public, add context to every number: our guide to building a public metrics page covers what to show and what to keep private.
Frequently asked questions
How do you convert MRR to ARR?
Multiply MRR by 12. ARR is an annualized run rate of current recurring revenue, not a forecast of next year’s growth.
Does ARR include one-time payments?
No. Setup fees, services, hardware, and lifetime deals are excluded because they do not recur.
Is ARR the same as annual revenue?
No. Annual revenue is what you recognized over the past year, including one-time items. ARR is the current recurring run rate times 12, so a fast-growing company’s ARR is usually higher than last year’s revenue.
Should I report MRR or ARR?
MRR if most customers pay monthly or the business is young. ARR if you sell annual or multi-year contracts, or when investors ask for it.
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Sources
- Stripe: monthly recurring revenue explained - MRR versus ARR, the types of MRR, and a worked plan-by-plan calculation
- a16z: 16 startup metrics - what ARR should exclude and the mistake of multiplying bookings by 12
- David Skok: SaaS Metrics 2.0, detailed definitions - ARR as MRR x 12 and the bookings, billings, and revenue example