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MRR vs ARR: What Each One Tells You and How to Calculate Them

ARR is MRR times 12, but that simple formula hides a few choices about what counts. Here is how to calculate both and read the movement between months.

By Muhammad Ahmad. Published . 2 min read.

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Monthly recurring revenue (MRR) and annual recurring revenue (ARR) describe the same thing at two different scales. MRR is the predictable revenue you bill every month. ARR is that figure projected across a year.

The arithmetic is simple. The useful part is being consistent about what goes in, and watching how MRR moves from one month to the next.

What counts as recurring revenue

  • Include subscription fees that repeat on a schedule.
  • Divide annual plans by 12 so they count toward MRR evenly, rather than all in the month they were paid.
  • Leave out one-time fees such as setup, onboarding or consulting.
  • Leave out usage charges that change a lot from month to month, or track them separately.

Calculating ARR

ARR is current MRR multiplied by 12. It is a run rate, not a forecast. It answers the question: if nothing changed, what would a year of this look like?

The four movements in MRR

MRR changes each month for four reasons. New customers add to it. Upgrades add expansion MRR. Downgrades and cancellations take it away. The net of those is your net new MRR.

A month at a $10,000 MRR business

  1. Net new MRR

    $1,500 + $300 − $500equals$1,300

  2. Current ARR

    $10,000 × 12equals$120,000

  3. Next month's ARR

    ($10,000 + $1,300) × 12equals$135,600

That is 13% month-over-month growth. It also shows why ARR can jump quickly: a single good month changes the run rate for the whole year.

Which one to report

Early-stage and monthly-billing businesses usually talk in MRR, because monthly changes are what they manage day to day. Businesses selling annual contracts, especially to larger customers, often talk in ARR. Pick one as your headline and show the other when it helps.

Mistakes that inflate the numbers

  • Counting a full annual payment as one month's MRR.
  • Including one-time services or setup fees.
  • Counting signed contracts that have not started billing yet.
  • Ignoring discounts, so MRR reflects list price rather than what customers pay.

Tip: Churned MRR measures revenue lost. It can differ from customer churn if larger or smaller customers are the ones leaving, so it is worth tracking both.

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