ARR vs MRR
ARR and MRR describe the recurring subscription base on different time scales. Under this site’s run-rate convention, ARR is exactly twelve times MRR. The choice is mainly about reporting context; neither figure tells you how much cash has been collected or how much revenue was earned over the past year.
Key differences
| Question | ARR | MRR |
|---|---|---|
| What does it express? | The recurring base on an annual scale at a reporting date. | The normalized monthly recurring base at a reporting date. |
| When is it useful? | Discussing company scale and annualized changes. | Explaining monthly changes from new business, expansion, contraction, and churn. |
| How does annual billing enter? | As an annualized recurring amount, not the full multi-year booking. | Spread over the subscription’s service months, not concentrated in the payment month. |
One scenario, two measures
Hypothetical worked scenario
A fictional business has 50 monthly accounts paying $200 and 10 annual accounts paying $2,400. It collects a $5,000 one-time setup fee in the same month.
MRR = (50 × $200) + (10 × $2,400 ÷ 12) = $12,000. ARR = $12,000 × 12 = $144,000. The setup fee is excluded from both.
If one annual customer renews early, the cash balance changes on the payment date, but MRR and ARR need not change. If a customer upgrades by $100 per month, MRR rises by $100 and ARR by $1,200.
Which should you use?
- Use MRR in a monthly operating review with a movement bridge. It makes the size of each upgrade or cancellation easier to trace back to the subscription ledger.
- Use ARR when communicating the annual scale of the same recurring base. Show the date and definition so a reader does not mistake an exit rate for revenue earned during the year.
- When planning hiring or spending, add a separate cash forecast. Converting MRR to ARR supplies no new information about payment timing or renewal probability.
Where comparisons can mislead
- If a company reports committed ARR including future starts, reconcile that policy before comparing it with current MRR × 12.
- Never multiply a multi-year total contract value by twelve. Normalize the recurring service schedule first.
Explore the full guides: ARR and MRR.
Sources and methodology
The references below explain the underlying methods. Our worked scenarios use hypothetical figures; they are not company results or current market benchmarks.
- Stripe: Annual recurring revenue
Normalizing subscriptions to an annual basis.
- Stripe: Monthly recurring revenue
Definition and recurring versus nonrecurring revenue.
Found an error or a definition that differs from your reporting? Send a correction with the page URL and the method you use.