ARR vs MRR

MRR (monthly recurring revenue) is the contracted revenue a subscription business earns in one month, and ARR (annual recurring revenue) is that same base for a full year, so ARR equals MRR x 12. They are one number at two time scales. Both only work once you strip out one-time fees, services and usage above what the customer committed to. Updated October 2026: added the rules for the math, a worked example, ARR vs run rate vs CARR vs ACV, and who gets which number.

The trouble is the "x 12." Annualize a raw month of invoices and you get something closer to a run rate. Annualize a clean month of contracted recurring revenue and you get ARR. This page shows the difference with one messy month, puts ARR next to the terms it gets confused with, and covers which number goes to whom.

ARR vs MRR vs Run Rate vs CARR vs ACV

These five terms get mixed up in board decks all the time. They measure different things.

Watch the acronym, too. Some tools and investors use "ARR" to mean annualized run rate, which counts one-time and usage revenue. Ask which one you are looking at before you compare two companies.

Is ARR Just MRR x 12?

Yes, when MRR is clean. ARR is a snapshot: take MRR at the end of a month and multiply by 12. The conversion breaks when the month you multiply holds revenue that will not repeat.

Three rules keep it honest:

1. Count contracts, not invoices. An annual contract paid upfront adds one twelfth of its annual value to MRR every month. It does not add a year of MRR in the month you bill it and nothing in the other eleven. 2. Count one year, not the whole term. A three-year contract counts at its annual recurring value. Counting total contract value as ARR triples that deal. 3. Count what is live. A signed deal that starts next quarter belongs in CARR until it goes live. Counting it early inflates ARR and breaks the link between bookings and recognized revenue. For that gap, see booked ARR vs billed ARR.

The math runs the other way too. $1 million of ARR is $83,333 of MRR ($1,000,000 / 12).

What to Strip Out Before You Convert

Both numbers include only contracted, repeatable revenue. The test for any line: will the customer pay it again next month or next year without making a new buying decision? If yes, it counts. If not, it stays out.

- One-time fees. Setup, onboarding and data moves. It is real money, but it goes on its own line. - Services. Work with an end date, like training or a consulting project. A managed service sold as an ongoing plan is the exception. - Usage above the committed minimum. Count the contracted floor. The overage is real revenue with no commitment behind it. If an account runs above its floor month after month, move it to a larger committed tier and the extra becomes ARR. - Deals not live yet. They go to CARR. - Hardware, taxes and pass-through charges. None of it is subscription revenue. - List price. Count what the customer actually pays each period, net of recurring discounts.

Worked Example: One Messy Month, Clean MRR and ARR (Illustrative)

A SaaS company ends October with $227,000 of invoices. Here is what counts. All figures are illustrative, made up to show the math.

- MRR: $103,000. - ARR: $103,000 x 12 = $1,236,000. - CARR: $1,236,000 + ($6,000 x 12) = $1,308,000. - The wrong answer: annualize the invoices and you get $227,000 x 12 = $2,724,000, more than double the real ARR.

Two more errors hide in the same month. Count the three-year deal at its $360,000 total value and ARR jumps by $240,000 for no reason. Count the $4,000 of overage in MRR and ARR rises $48,000, then falls back when usage does, which shows up as contraction nobody caused.

When to Use ARR vs MRR

Manage in the cadence your contracts renew in. If most customers are on monthly plans, run the business on MRR, because churn and expansion land monthly and a monthly view catches them first. If most revenue sits on annual or multi-year contracts, run it on ARR, because the contract and the renewal date are the units you plan around. Many B2B companies track both: MRR movement inside the business, ARR outside it.

Which Number to Report to Whom

The audience decides the unit. Every audience gets the same base, defined once.

- Board and investors: ARR, with net new ARR, gross and net revenue retention, and the monthly waterfall below. Investors judge growth in ARR. A common yardstick is T2D3: from $2 million of ARR, triple twice, then double three times (Neeraj Agrawal, Battery Ventures, 2015). - CFO and finance: ARR and MRR tied out to bookings, billings and recognized revenue, so every gap has a name. - CRO and sales leadership: net new ARR and bookings, plus CARR when go-live lags signature. - Customer success: ARR or MRR by account, with churn and contraction split out. - Operators at a monthly-plan business: MRR change each month, split into new, growth, shrink and churn.

Pete Furseth, ORM's COO, puts the board test plainly: a number on one slide has to show up on the next, or there has to be a clear reason it changed. If the board deck shows ARR and the finance pack shows annualized MRR built a different way, you fail that test before the meeting starts.

The One Chart Pete Would Show Every SaaS CFO

Asked which single chart he would put in front of every SaaS CFO, Pete Furseth picked a monthly ARR waterfall. ORM calls it Gross and Net Retention. Each month runs through these lines:

Define Each Amount Once

Most ARR and MRR disputes are definition disputes. One ORM customer had nine amount fields in its CRM, covering TCV, ACV, ARR, renewal amount and legacy fields nobody had filled in since 2021. Working out which one to trust took several weeks, because no single person knew how the fields should be read.

Write down which field feeds ARR, what is excluded, and when a deal counts as live. Then check that the total ties out. During ORM's validation period, one check is simple: add up a year of bookings in ORM, and it should match what the company reports internally.

Why the Choice Shapes Forecasting

The cadence you lead with changes how you forecast. If you run on MRR, you forecast by month, since growth, shrink and churn move month to month. If you run on ARR, you forecast against yearly deals, where the unit of planning is the contract and its renewal date. Usage-heavy firms need a third way. Pete's advice is to skip the shortcut of extending last month's usage. Find what drives use, forecast those drivers, then turn the result into revenue.

In every case, the growth that matters is the recurring base expanding on its own, which is why net new ARR and expansion revenue deserve more attention than the headline total. For how recurring revenue feeds the plan, see annual recurring revenue.