What are MRR and ARR? Key Differences

The two most commonly used metrics to measure growth and revenue stability in SaaS and subscription-based business models are MRR and ARR. But what exactly are MRR and ARR, what are the differences between them, and how are they calculated? In this guide, we clarify everything with examples.

What is MRR?

MRR (Monthly Recurring Revenue) refers to the revenue you can expect to receive regularly each month from subscriptions.

MRR is particularly essential in SaaS companies for:

seeing revenue stability,
measuring growth rate,
tracking the impact of churn (customer loss),
financial planning

as a core metric.

How is MRR Calculated?

At its simplest:

MRR = Total monthly subscription fees from active subscribers

Example:

50 customers × $40 / month = $2,000 MRR

If you have annual plans or different packages, you normalize everything to a monthly basis and add them together.

Example (annual plan):

1 customer paying $1,200 annually → monthly equivalent: 1,200 / 12 = $100 MRR

What is ARR?

ARR (Annual Recurring Revenue) refers to the revenue you can expect to receive regularly in a year from subscriptions.

It's generally used for the "bigger picture":

annual targets/planning,
investor presentations,
annual contract B2B sales

where ARR stands out.

How is ARR Calculated?

The most common method:

ARR = MRR × 12

Example:

$2,000 MRR × 12 = $24,000 ARR

If you have annual contracts directly:

20 customers × $3,000 / year = $60,000 ARR

What's the Difference Between MRR and ARR?

MRR and ARR measure the same revenue on different time scales. However, their use cases differ:

MRR: Ideal for short-term analysis like monthly growth, churn, price changes, and campaign impact.
ARR: Better suited for annual scale, enterprise sales, and investor reporting.

In short:

MRR is more "operational"
ARR is more "strategic" a metric.

What are MRR Types?

Although MRR looks like a single number, it's usually broken down into sub-segments for healthy analysis:

New MRR: Monthly recurring revenue from newly acquired customers.
Expansion MRR: Increased revenue from existing customers upgrading packages, buying additional users, etc.
Contraction MRR: Decreased revenue from existing customers downgrading packages, reducing users, etc.
Churned MRR: Monthly recurring revenue lost due to customers canceling.

These breakdowns help you understand "where growth is coming from" and "what's causing losses."

Important Considerations When Calculating MRR/ARR

Are one-time revenues included in MRR?

No. Setup fees, consulting, one-time integrations, and similar revenues are not recurring, so they're not included in MRR/ARR.

Are usage-based revenues included?

It depends. If you have a regular and predictable base fee + variable usage charges:

the base fee is included in MRR,
for the variable portion, it's healthier to keep a separate metric (e.g., "usage revenue").

Why are MRR and ARR Important?

MRR/ARR provides you with:

Growth measurement: tracking trends month-over-month or year-over-year
Forecasting: revenue projections and budget planning
Investor language: SaaS valuations are often discussed in ARR multiples
Health indicators: churn and expansion dynamics become clear

Frequently Asked Questions About MRR and ARR

Are annual plans better than monthly plans?

Annual plans: improve cash flow, can reduce churn risk, and are more common in enterprise sales. Monthly plans: provide lower entry barriers, may be more accessible to smaller customers.

Ideal approach: segment-based pricing and proper package architecture.

Conclusion: What are MRR and ARR?

In short:

MRR (Monthly Recurring Revenue): Monthly recurring subscription revenue
ARR (Annual Recurring Revenue): Annual recurring subscription revenue (usually MRR × 12)

To correctly read your SaaS business's growth, track both metrics consistently, and ideally monitor MRR across New/Expansion/Contraction/Churn breakdowns.

What are MRR and ARR?