ARR vs MRR: Complete Guide to Recurring Revenue Metrics
Every SaaS pitch deck leads with ARR or MRR. These aren't just vanity metrics—they're the foundation of how investors value your company.
Get them wrong, and you'll either undersell yourself or get caught inflating numbers.
What is MRR?
Monthly Recurring Revenue (MRR) is the predictable revenue your business earns every month from subscriptions.
MRR = Sum of all monthly subscription payments
MRR Calculation Example
| Customer | Plan | Monthly Payment | |----------|------|-----------------| | Company A | Pro | $500 | | Company B | Pro | $500 | | Company C | Enterprise | $2,000 | | Company D | Basic | $100 |
Total MRR = $3,100
What is ARR?
Annual Recurring Revenue (ARR) is simply MRR multiplied by 12.
ARR = MRR × 12
Using the example above:
ARR = $3,100 × 12 = $37,200
When to Use MRR vs ARR
| Metric | Best For | |--------|----------| | MRR | Early-stage, month-to-month analysis, small numbers | | ARR | Series A+, investor pitches, larger numbers |
Rule of thumb:
- Below $1M ARR → use MRR
- Above $1M ARR → use ARR
Nobody says "we have $83,333 MRR." They say "$1M ARR."
Breaking Down MRR Components
New MRR
Revenue from brand new customers this month.
Expansion MRR
Additional revenue from existing customers (upgrades, add-ons).
Churned MRR
Revenue lost from customers who cancelled.
Contraction MRR
Revenue lost from downgrades (but customer stays).
Net New MRR
Net New MRR = New MRR + Expansion MRR - Churned MRR - Contraction MRR
This is what investors care about most.
Common MRR/ARR Mistakes
1. Including One-Time Fees
❌ Setup fees, implementation fees, consulting revenue
MRR/ARR must be recurring. One-time fees are separate.
2. Including Annual Prepays at Full Value
If a customer pays $12,000 upfront for an annual plan:
❌ Wrong: Add $12,000 to MRR ✅ Right: Add $1,000 to MRR ($12,000 / 12)
3. Not Annualizing Monthly Plans
If using ARR, monthly subscribers must be annualized:
❌ Wrong: $100/month customer = $100 ARR ✅ Right: $100/month customer = $1,200 ARR
4. Double-Counting Multi-Year Deals
A 3-year, $36,000 deal:
❌ Wrong: $36,000 ARR ✅ Right: $12,000 ARR
ARR represents one year of value, regardless of contract length.
5. Including Churned Revenue
If a customer cancelled mid-month, remove their MRR immediately for reporting purposes.
MRR Movement Analysis
Track MRR changes monthly:
| Movement | January | February | March | |----------|---------|----------|-------| | Starting MRR | $100,000 | $105,000 | $112,000 | | + New MRR | $8,000 | $10,000 | $12,000 | | + Expansion | $2,000 | $3,000 | $4,000 | | - Churn | ($4,000) | ($5,000) | ($4,000) | | - Contraction | ($1,000) | ($1,000) | ($2,000) | | Ending MRR | $105,000 | $112,000 | $122,000 |
This waterfall view shows exactly where growth comes from.
Key MRR Ratios
Net Revenue Retention (NRR)
NRR = (Starting MRR + Expansion - Churn - Contraction) / Starting MRR
| NRR | Assessment | |-----|------------| | < 90% | Red flag | | 90-100% | Acceptable | | 100-110% | Good | | 110-130% | Great | | > 130% | World-class |
Gross Revenue Retention (GRR)
GRR = (Starting MRR - Churn - Contraction) / Starting MRR
GRR can never exceed 100%. It measures pure churn without expansion.
Quick Ratio
Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)
| Quick Ratio | Growth Quality | |-------------|----------------| | < 1 | Shrinking | | 1 - 2 | Slow growth | | 2 - 4 | Healthy | | > 4 | Excellent |
ARR Milestones
Common ARR milestones in SaaS:
| Milestone | Typical Stage | |-----------|--------------| | $100K ARR | Pre-seed | | $500K ARR | Seed | | $1M ARR | Strong seed / Series A | | $5M ARR | Series A | | $10M ARR | Series B | | $50M ARR | Series C | | $100M ARR | IPO territory |
Valuation Multiples by ARR
Rough 2024 benchmarks:
| Growth Rate | ARR Multiple | |-------------|--------------| | < 20% | 2-4x | | 20-40% | 4-8x | | 40-80% | 8-15x | | > 80% | 15-25x+ |
A $5M ARR company growing 50% YoY might be valued at $50-75M.
Calculate Your Revenue Metrics
Use our tools to model your SaaS metrics:
- Unit Economics Calculator - Model LTV:CAC with your MRR
- Runway Calculator - Project growth scenarios
- Dilution Simulator - See how raises affect ownership
Key Takeaways
- MRR and ARR must be recurring - no one-time fees
- Track all MRR movements - new, expansion, churn, contraction
- Net Revenue Retention is king - aim for >100%
- Quick Ratio shows growth quality - aim for >4
- Be consistent - pick a methodology and stick to it
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