ARR vs MRR: Which Metric Matters Most for SaaS Growth?
If you’re running a SaaS business, you’ve probably heard both ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) tossed around in investor meetings, board reports, and financial dashboards. At first glance, they look similar. But using them interchangeably can cause confusion in forecasting, fundraising, and decision-making.
This guide breaks down ARR vs MRR, shows how to calculate each, and explains when to use them for clarity and confidence.
Quick Definitions
- MRR (Monthly Recurring Revenue): Predictable subscription revenue collected each month.
- ARR (Annual Recurring Revenue): Yearly version of recurring revenue, usually MRR × 12, adjusted for churn and expansion.
👉 You can calculate instantly with the Monthly Recurring Revenue Calculator and the Annual Recurring Revenue Calculator.
ARR vs MRR: Side-by-Side Comparison
| Factor | MRR (Monthly) | ARR (Annual) |
|---|---|---|
| Timeframe | Short-term, tactical | Long-term, strategic |
| Use Case | Daily/weekly growth tracking, quick shifts | Forecasting, fundraising, valuation |
| Volatility | More sensitive to churn and upgrades | Smoother, stable view |
| Best For | Ops, marketing, sales teams | Finance, investors, executive strategy |
| Formula | Sum of recurring revenue for one month | MRR × 12 (adjusted for churn/expansion) |
How to Calculate ARR and MRR
MRR Example
- 200 customers paying $50/month = $10,000 MRR
- Upsell $2,000 + Churn $1,000 = Net MRR = $11,000
👉 Try the MRR Calculator to plug in your own numbers.
ARR Example
- Start with $11,000 MRR
- ARR = $11,000 × 12 = $132,000 ARR
- Subtract churn and add expansion for accuracy
👉 Use the ARR Calculator for a quick result.
Why Both Metrics Matter
- MRR for agility: Great for spotting short-term changes in churn, upgrades, and sign-ups.
- ARR for strategy: The metric investors, CFOs, and boards use to assess business health.
- Together, ARR and MRR guide forecasting, runway planning, and SaaS valuation.
Want to see how churn erodes both metrics? Test the Churn Impact Calculator.
When to Use MRR vs ARR
- Startups: Report MRR for precision, especially under $1M ARR.
- Growth stage companies: Use ARR for fundraising and annual forecasting.
- Enterprise SaaS: ARR is critical if most contracts are annual or multi-year.
- Day-to-day ops: MRR is better for product and marketing teams tracking activation trends.
Common Mistakes in ARR and MRR
- Including one-time fees or services in recurring revenue.
- Forgetting to account for expansion revenue.
- Ignoring churn when presenting ARR.
- Reporting different definitions to investors and internal teams.
👉 To measure upsells properly, check the Expansion Revenue Calculator.
FAQs
1. What’s the difference between ARR and MRR in SaaS?
ARR measures recurring revenue annually, while MRR tracks it monthly.
2. Which metric do investors prefer?
Investors often look at ARR for valuation but also want MRR to see short-term performance.
3. Can ARR be higher than MRR × 12?
Yes, if you include multi-year contracts or annual prepayments.
4. When should a SaaS startup use ARR instead of MRR?
After hitting ~$1M in revenue or when raising capital, ARR becomes more relevant.
5. Should churn and upsells be included in ARR and MRR?
Yes, both should reflect net recurring revenue after churn and expansion.