Quick answer
Understand the difference between MRR and ARR, when each SaaS revenue metric matters, and how to calculate both from recurring revenue.
Core formulas
MRR = sum of normalized monthly recurring subscription revenue
Annual contracts should be divided by 12 before they are compared with monthly plans.ARR = MRR * 12
ARR is a run-rate view. It is not the same as cash collected this year.Worked example
Simple MRR and ARR example
- 100 customers pay $49 per month.
- 10 customers pay $1,200 per year, normalized to $100 per month.
- There are no one-time implementation fees in the recurring revenue base.
The practical difference
MRR is better for operating the business month to month. It reacts quickly when acquisition, expansion, contraction or churn changes. ARR is better for communicating the size of the recurring revenue base over a longer period.
Early SaaS teams should not choose one metric and ignore the other. MRR helps you diagnose the engine. ARR helps you explain the run rate. Together they tell a clearer story than either metric alone.
- Use MRR when checking monthly growth, churn, pricing changes and acquisition experiments.
- Use ARR when summarizing the current recurring revenue base for planning, investor updates or annual targets.
- Use cash flow separately when timing, annual prepayments, refunds or receivables matter.
What not to include
MRR and ARR should only include recurring revenue. One-time setup fees, implementation services, hardware, consulting and irregular usage spikes can be valuable, but mixing them into recurring metrics makes retention and growth look cleaner than they really are.
Discounts also need consistent treatment. If a customer pays a discounted recurring price, use the current recurring amount unless you are explicitly modeling a future price step-up.
How to use the calculator
Start with the SaaS revenue calculator when you need a broad view of current customers, ARPA, new customers, revenue churn and expansion. Use the ARR calculator when your inputs are already MRR movement categories and you want ending ARR.
Use the calculators
FAQ
Is ARR always MRR times 12?
For a simple run-rate view, yes. The key is making sure MRR is normalized recurring revenue and excludes one-time fees.
Why can ARR grow while cash is low?
ARR measures recurring revenue run rate, not cash timing. A business can have growing ARR while cash is constrained by expenses, delayed payments or churn risk.
Which metric should a new SaaS founder report first?
Report MRR first for operational clarity, then show ARR as an annualized run rate once the recurring base is meaningful.