MRR vs ARR: what each one measures, how to calculate them and which to report

How do you calculate MRR?

Add up what every paying customer is worth per month, after converting each subscription to its monthly equivalent. Stripe's Billing analytics documentation defines MRR as the sum of the monthly-normalised value of active and past-due subscriptions, excluding tax, free plans and metered usage. Its own example: 100 subscribers on $100 a month plus 50 on $600 a year gives $12,500.

A hypothetical example of our own. You have 120 customers on a $29 monthly plan and 15 on a $300 annual plan, which is worth $25 a month (300 ÷ 12). MRR is 120 × 29 + 15 × 25 = $3,480 + $375 = $3,855, and ARR is $46,260.

1. List paying subscriptions at month end. Trials and free plans stay out.
2. Convert everything to a month: divide annual plans by 12 and quarterly plans by 3.
3. Strip out anything that does not repeat on its own: onboarding, training, services, hardware, tax.
4. Decide once how to treat discounts. Permanent ones come off; Stripe describes subtracting temporary ones too as the more conservative choice.
5. Compare with last month, line by line, rather than only total against total.

Two edge cases trip people up. In Stripe's definition, a customer whose payment has failed still counts while the subscription is past due, and becomes churn only when it is cancelled or marked unpaid. And if your billing lets customers cancel at the end of the period they have already paid for, they stay active, and in MRR, until that date. Neither convention is universal, so write down the one you use.

Should you report MRR or ARR?

Report the one that matches how your customers pay. David Skok's rule in SaaS Metrics 2.0 is clean: businesses with mostly monthly contracts should run on MRR; those with mostly annual contracts should run on ARR and annual contract value (ACV).

In practice many early-stage SaaS teams track MRR internally and quote ARR externally, because that is the unit investors compare across companies. That is fine as long as the ARR is genuinely MRR × 12 and the MRR underneath is clean. When the numbers end up in a pitch deck, expect the first question to be what is inside them.

One caution for very young companies: with eight customers, a single cancellation moves ARR by 12.5%. At that size, talk in customers and MRR and let the month-on-month trend do the persuading.

What should never go into MRR or ARR?

Anything that does not recur by itself. Andreessen Horowitz is explicit that ARR excludes one-time fees, professional services and variable usage fees. In practice that means:

• Set-up and onboarding fees, even when invoiced with the first subscription payment.
• Consulting, implementation and training: valuable revenue, but not recurring and usually lower margin.
• Tax: VAT or sales tax you collect is not your revenue.
• Trials and free plans: no payment, no MRR.
• Metered usage: track it as its own line. If a contract guarantees a minimum spend, that floor behaves like a subscription and can reasonably be counted.
• Introductory discounts: a three-month promotional price is not your steady-state recurring revenue.

Is ARR the same as run rate?

Not if run rate means one period's total takings projected over a year. ARR counts recurring revenue only, and the label gets used loosely: ChartMogul's retention report glosses ARR as annual run rate, which is harmless when, as there, it means MRR × 12. The trouble starts when the base is a month of cash.

Back to the hypothetical company. In March it collects $3,480 from monthly plans, $1,200 from four annual renewals and $2,000 in onboarding fees from five new customers: $6,680. Multiply by 12 and you get $80,160, about 73% above the real ARR of $46,260. Only the second number survives due diligence.

Signed contracts that have not started yet are a third category: bookings, the value of a contract, not revenue. a16z adds that letters of intent and verbal agreements count as neither.

How do you read MRR movements?

Split each month's change into new, expansion, contraction, churn and reactivation. The closing figure tells you where you are; the movements tell you why. Say next month brings 10 new monthly customers (+$290), 3 existing customers add a seat (+$45) and 6 monthly customers cancel (−$174): net new MRR is $161 and MRR closes at $4,016. The cancellations deserve their own scrutiny, which is what our guide to SaaS churn rate covers.

Growth in MRR is only half the story: what it costs to win each new customer, and how long they stay, decides whether that growth is worth having. The overview of SaaS metrics that matter shows how the pieces connect.