ARR vs MRR is the difference between measuring subscription revenue on a monthly run rate (MRR) versus an annualized one (ARR). Both answer the same question — how much predictable revenue the business earns from subscriptions — at different scales.

How it works

MRR sums active subscription revenue for one month, excluding one-time fees and non-recurring services unless you clearly label them. If you have 100 customers paying $50 per month, MRR is $5,000. ARR is simply MRR × 12, so $60,000 in that example.

Annual contracts are often quoted in ARR at signing: a $12,000 per year deal is $1,000 MRR and $12,000 ARR. Some teams track “contracted ARR” (signed but not yet live) separately from “live ARR” (currently billing). Churn, expansions, and downgrades flow through both metrics via net revenue retention.

Investors typically want MRR for early-stage monthly-billing products and ARR once ACV rises or contracts are annual. The conversion is mechanical; the judgment is what counts as truly recurring.

Why it matters

• Founders: Pick one primary metric in your deck and board updates. Show MRR growth and net retention; convert to ARR when your buyer persona thinks in annual budgets.
• Investors: ARR enables cross-company comps and rough valuation multiples; MRR reveals seasonality and monthly churn that annual smoothing hides.
• Operators: Finance and sales must agree on definitions before KPI dashboards go to the board.

Common mistake

Treating total bookings or upfront cash as ARR. A three-year prepaid invoice is cash and deferred revenue — not ARR unless you have a consistent policy and explain it. Investors will recompute.

Related ideas

Monthly recurring revenue, annual contract value, net revenue retention, and /glossary/bookings versus recognized revenue.