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Startups & Business › Metrics & Unit Economics

MRR and ARR

Monthly and annual recurring revenue, the headline numbers for subscription businesses.

Tech Entrepreneur · MVP · core

Also known as: MRR, ARR, monthly recurring revenue, annual recurring revenue

MRR (monthly recurring revenue) is predictable subscription revenue per month; ARR is MRR × 12. Together they are the headline health numbers for subscription businesses — what the company earns repeatedly, stripped of one-offs, implementation fees and wishful thinking.

MRR = Σ active subscriptions' monthly value (new + retained + expanded − churned − contracted)
ARR = MRR × 12 (annualized view for planning and valuation conversations)

Movement decomposes cleanly: new logos, expansion, churn, contraction — the four flows every MRR report should show separately. A growing headline with hidden churn is a treadmill; flat headline with strong expansion is a coiled spring. The decomposition, not the total, tells the story.

The classic mistakes:

  • Counting everything as recurring. One-time setup fees, services and hardware in MRR inflate the only number investors model on. Recurring means recurring — contractually, repeatably.
  • ARR by wishful multiplication. MRR × 12 assumes retention the business has not earned. Early-stage ARR is a planning convenience, not a valuation fact — say which.
  • Ignoring contraction. Downgrades bleed as surely as churn but hide inside net numbers. Track expansion and contraction separately (net retention).
  • Confusing with cash or bookings. Signed-but-unpaid, billed-annually-upfront, collected-late — revenue recognition, billings and cash all differ (bookings vs billings). Know which number each conversation needs.
  • Vanity MRR. Trials counted as revenue, paused accounts kept active, family plans at cost. MRR discipline is revenue discipline — audit what qualifies quarterly.

Ritual: monthly MRR movement review (new/expansion/churn/contraction), with commentary on each flow’s driver. It is the subscription business’s pulse — take it religiously.