MRR vs ARR: what's the difference?
If you run a subscription business, these two acronyms are the heartbeat of your numbers. They measure the same thing at different time scales — but using the wrong one at the wrong moment misleads.
Skip the math — the free ltv cac calculator runs this from your own figures.
Open the free calculator →The simple definitions
MRR is monthly recurring revenue — the predictable subscription revenue you earn in a month. ARR is annual recurring revenue — the same idea over a year. At their simplest, ARR = MRR × 12.
Both count only recurring revenue. One-off setup fees, one-time services, or usage overages that don't repeat predictably don't belong in either — including them inflates the number and hides the truth.
How to calculate each
MRR is the sum of every customer's monthly subscription value. If you have 100 customers each paying $50 a month, your MRR is $5,000. For annual plans, divide the annual price by 12 to get its monthly contribution to MRR.
ARR is that MRR run-rate annualised: $5,000 MRR is $60,000 ARR. ARR is a run-rate — it's what you'd earn in a year if nothing changed, not necessarily what you'll actually bill this calendar year.
When to use MRR
Use MRR for the day-to-day operating view. Because it moves month to month, it's the right lens for tracking growth, churn, expansion, and the impact of recent changes. Early-stage and fast-moving businesses live in MRR.
MRR's monthly granularity is exactly what you want when a single month's new signups or cancellations matter to the story.
When to use ARR
Use ARR for the strategic, big-picture view — annual planning, board updates, valuation conversations, and businesses built on annual contracts. It smooths out monthly noise into a single headline number.
ARR is especially natural when most customers sign yearly deals, because the annual figure matches how the business actually contracts and collects.
The mistake to avoid
The classic error is treating ARR as cash in the bank. ARR is a run-rate snapshot, not guaranteed revenue — customers can churn, downgrade, or fail to renew. It tells you your current annual pace, not a promise.
Read either metric alongside churn and net revenue retention to see whether that run-rate is growing or quietly eroding. The free calculator below builds your MRR and ARR from your own customer and pricing inputs, plus the churn and LTV:CAC context that makes them meaningful.
Questions
Should annual plans go into MRR or ARR?
Both, expressed consistently. For MRR, divide an annual plan's price by 12 so it contributes its monthly share. For ARR, use the full annual value. The key is to be consistent — don't count an annual plan's full value in a single month's MRR, as that creates a spike that isn't really recurring monthly revenue.
Does MRR or ARR include taxes or one-time fees?
Neither. Both measure recurring subscription revenue only, excluding sales tax, one-time setup or onboarding fees, and non-recurring services. Including one-off amounts overstates your recurring base and makes growth and churn harder to read accurately.