Annual Recurring Revenue (ARR)
& Monthly Recurring Revenue (MRR)

ARR vs. MRR: A Comprehensive Guide

ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) are two fundamental metrics used in subscription-based businesses. They provide valuable insights into a company's financial health and growth trajectory.

Understanding ARR

Definition: ARR represents the total recurring revenue a company expects to generate over a year. It's a key metric for businesses with subscription-based models, such as SaaS (Software as a Service) companies.
Calculation: ARR is typically calculated by multiplying the MRR by 12.

Understanding MRR

Definition: MRR is the recurring revenue a company generates on a monthly basis. It's a more granular metric than ARR, providing a snapshot of monthly performance.
Calculation: MRR is calculated by summing up the monthly subscription fees from all active customers.

Key Differences Between ARR and MRR

Feature	ARR	MRR
Timeframe	Annual	Monthly
Calculation	MRR * 12	Sum of monthly active subscription fees
Focus	Overall annual revenue	Monthly Performance

When to Use ARR and MRR

ARR: Ideal for long-term planning, investor presentations, and overall financial health assessment.
MRR: Useful for short-term forecasting, monthly performance analysis, and customer churn tracking.

Additional Considerations

Churn: Both ARR and MRR can be affected by customer churn. High churn rates can negatively impact these metrics.
Expansion: MRR can increase due to customer expansions (upselling or cross-selling) and new customer acquisitions.
Contractions: MRR can decrease due to customer downgrades or cancellations.
Other Revenue Streams: If a company has non-recurring revenue streams (e.g., one-time fees), these should be considered separately from ARR and MRR.

By understanding the differences between ARR and MRR, businesses can make informed decisions about their growth strategies and financial performance.