What it means
Monthly recurring revenue (MRR) is the subscription revenue you'd collect in a normal month from the customers you have right now. Annual recurring revenue (ARR) is that rate times twelve. Both describe a pace on one date.
It works like a speedometer. It tells you how fast you're going at this moment, and says nothing about how far you've driven this year. Revenue on the P&L is the distance.
Add up the monthly value of every active subscription, net of discounts. An annual contract counts as one-twelfth per month. Leave out setup fees, professional services, one-off usage and taxes. ARR is MRR × 12.
Neither number is GAAP. Revenue under ASC 606 is what you earned over a period, and it won't match ARR. Show how ARR moved, split into new, expansion, contraction and churn, so a reader can see where the change came from.
Acme has 40 customers paying $500 a month and 5 customers on annual contracts worth $3,000 a month each. MRR is $20,000 plus $15,000, or $35,000, so ARR is $420,000. A $10,000 onboarding fee billed this month doesn't count. A customer who signs on the last day of the month lifts ARR at once while adding almost nothing to that month's revenue.
Net revenue retention and the burn multiple are both built on ARR. In a raise, investors reconcile ARR to GAAP revenue, so keep that bridge ready.
Why it matters. It's the headline number in most SaaS raises. Define it once, leave out one-time fees and usage spikes, and make sure it reconciles to GAAP revenue so nobody thinks you're mixing the two.
Try it with your numbers
Change any number. The working below updates as you type.
MRR = Customers × Monthly price + Annual contracts ÷ 12 · ARR = MRR × 12Recurring fee after discounts.
Recurring fees only: no setup, services or usage.
ARR
$420,000
How it’s worked out
- 1MRR from monthly plans40 × $500$20,000
- 2MRR from annual contracts5 × $36,000 ÷ 12$15,000
- 3MRR$20,000 + $15,000$35,000
- 4ARR$35,000 × 12$420,000
MRR and ARR are operating metrics, not GAAP revenue, and won't tie to the P&L. Leave out setup fees, services, usage overage and tax.
Common questions
Why doesn't my ARR match my revenue?
ARR is a run rate at a point in time. Revenue is what was earned over a period under ASC 606. A customer who signed on the last day adds to ARR but has barely any revenue yet.
Should ARR include usage-based revenue?
Only the part that's reliably recurring, and only if you say how you measured it. Many companies report committed ARR and usage separately.
How do I count a multi-year contract with price increases?
Count the rate in effect today. A contract that steps from $40,000 to $60,000 in year two adds $40,000 of ARR now and $20,000 of expansion when the step-up starts. Averaging the steps overstates today's run rate.
Where it comes up
The glossary entries, founder guides and lessons on this site that use the term and link here.
- ARRARR is a recurring-revenue metric, calculated as MRR × 12.Glossary
- Audit-ready books before your Series AInvestors, lenders and auditors ask for the same things: accrual statements, reconciled accounts and support for every balance. How to be ready first.Guide · 4 min
- Can you vibe code your startup’s accounting?AI coding tools build a finance dashboard in an afternoon, but not a closed, reconciled, GAAP-basis ledger. Where the line is, and how to stay inside it.Guide · 3 min
- Deferred revenue for SaaS startups, explainedAn annual prepayment is cash today and revenue over a year. How deferred revenue works under ASC 606, why it’s a liability, and the schedule behind it.Guide · 4 min
- How to reconcile Stripe payouts to your booksA Stripe payout is charges less fees, refunds and disputes, batched across days. How to book it gross, tie it to the bank, and keep revenue right.Guide · 4 min
- Burn rate and runway: how to calculate them correctlyGross burn, net burn and months of runway, done the way an investor checks them: from cash, averaged, and with the hires you’ve already committed to.Guide · 3 min
- MRR vs GAAP revenue under ASC 606MRR and ARR are operating metrics; revenue under ASC 606 is earned over time. How annual prepayments and churn split them, and how to reconcile the two.Guide · 6 min
- SaaS revenue recognition under ASC 606, step by stepASC 606’s five steps applied to a startup SaaS contract: annual prepay, implementation fees, usage and multi-year deals, with the entries.Guide · 6 min
Read further
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.