MRR vs ARR

MRR is your recurring revenue normalised to a month; ARR is the same revenue normalised to a year. They measure one underlying quantity — the subscription run-rate — at two time scales, and neither is more accurate than the other. A business doing $25,000 MRR is a $300,000 ARR business; nothing about it changed between those two sentences.

The difference is resolution. MRR moves visibly month to month — you can see a churn spike or a strong sales month in it. ARR smooths the same signal into a headline: the number you say out loud to investors, in job posts and at conferences, where annual scale is the convention.

ARR = MRR × 12, and back again: MRR = ARR ÷ 12. The $25,000 MRR from the example annualises to $300,000 ARR. Any metric built on one converts to the other the same way — new ARR is new MRR × 12, churned ARR is churned MRR × 12 — which is why a library like this one only needs the MRR versions.

The trap is annualising a month that isn't representative. Multiplying a spiky month — a one-off enterprise deal, a January full of annual renewals — by 12 produces an ARR the business will not actually collect. Run-rate ARR is a projection built on the assumption that this month is normal; the more seasonal or lumpy your sales, the more that assumption flatters or punishes you.

Match the number to the motion. Self-serve and SMB products on monthly plans live in MRR — decisions happen monthly, churn happens monthly, and the team's operating cadence should watch the number at the speed it moves. Enterprise businesses on annual contracts think in ARR, because that is the unit deals are signed in; a monthly view of a business that closes four contracts a quarter is mostly noise.

Fundraising is the exception that swallows the rule: investors quote ARR regardless of your motion, so translate at the boundary. Internally, pick one canonical unit — almost always MRR, since it converts losslessly upward — and derive the other, rather than letting two teams report two numbers that drift.

The conversion is trivial; the definitions underneath are not. Fix these once, in writing:

• Annual prepays: a $1,200/year contract is $100 of MRR from day one — not $1,200 of MRR in the month it was paid.
• One-time fees, setup charges and overages stay out of both MRR and ARR; they are revenue, not recurring revenue.
• Which number the board sees — and if it is ARR, whether it is contracted ARR or annualised run-rate, because the two diverge exactly when growth is fastest.