ARR vs MRR

ARR vs MRR is the distinction between two recurring-revenue metrics that measure the same thing at different time scales: MRR (monthly recurring revenue) is the predictable revenue a subscription business earns each month, and ARR (annual recurring revenue) is that figure annualized, the recurring revenue over a year. In the simplest terms, ARR is MRR multiplied by twelve.

Because they are two views of one underlying number, the question is rarely which is "correct" but which is more useful for a given purpose. The choice usually comes down to the length of your contracts and the audience you are reporting to.

What MRR is

Monthly recurring revenue is the total predictable subscription revenue a business earns in a month, counting only recurring amounts, not one-time fees. If you have 200 customers each paying $500 a month, your MRR is $100,000. MRR is the natural unit for businesses that bill monthly and want a granular, month-to-month view of growth, including the moving parts: new MRR, expansion, contraction, and churn.

What ARR is

Annual recurring revenue is the same recurring revenue expressed over a year. With $100,000 MRR, ARR is $1,200,000. ARR is the natural unit for businesses with annual contracts and the headline metric leadership and investors use to gauge scale and year-over-year growth. It smooths out monthly noise into a single, big-picture number.

The relationship between ARR and MRR

The link is straightforward: ARR = MRR × 12, and MRR = ARR ÷ 12. They never disagree about the business; they just frame the same recurring revenue at different resolutions.

When to use ARR vs MRR

Use MRR when you bill monthly and want to watch growth closely, month-to-month changes, the impact of churn, the effect of a pricing change, show up fastest in MRR. Use ARR when your contracts are annual and you are communicating scale and growth to leadership or investors, where a single yearly figure is clearer than a monthly one. Many companies track MRR operationally and report ARR externally.

ARR/MRR vs ACV

It is worth separating these from ACV (annual contract value). ARR and MRR are aggregate, company-wide recurring-revenue figures. ACV is a per-contract metric, the annualized value of one deal. You can have the same ARR built from many small contracts or a few large ones; ACV describes the typical deal, while ARR/MRR describe the whole book. We unpack the related ACV/ARR pairing in ACV vs ARR.

Why ARR and MRR matter

• Predictability. Both isolate recurring revenue, the reliable base a subscription business plans on.
• Growth tracking. Changes in MRR/ARR (new, expansion, contraction, churn) show exactly how the business is growing.
• Valuation. ARR is a primary metric investors use to value subscription companies.
• Planning. A clear recurring-revenue baseline underpins hiring, budgeting, and forecasting.

Common ARR/MRR mistakes

• Including one-time fees. Setup or services revenue is not recurring and inflates MRR/ARR if counted.
• Ignoring churn and contraction. Tracking only new revenue hides the leaks that determine net growth.
• Mixing the two carelessly. Comparing an ARR figure to an MRR figure without annualizing distorts everything by 12×.
• Treating them as ACV. Confusing an aggregate recurring-revenue figure with a per-contract value misstates deal size.

ARR and MRR are the same recurring-revenue story told monthly and annually. Pick the scale that fits your contracts and audience, keep one-time revenue out of both, and they become the clearest measures of how a subscription business is really growing.