MRR (monthly recurring revenue) is the predictable revenue your subscriptions bring in every month. ARR (annual recurring revenue) is the same revenue counted over a year, which for monthly plans is MRR times 12. Use MRR to run the business month to month, and ARR to talk about the size of the business and about annual contracts.
Both numbers only count revenue that repeats. One-time fees, setup work and one-off services stay out.
What is MRR?
MRR, or monthly recurring revenue, is what your active subscriptions are worth in one month. It answers a simple question: if nothing changed, how much would come in next month?
What counts in MRR:
- Monthly subscription fees from paying customers.
- Annual or multi-year plans, turned into a monthly amount.
- Recurring add-ons, like extra seats or a support plan billed every month.
- Discounts, taken off. A $100 plan sold at 20% off counts as $80.
What stays out of MRR:
- Setup, onboarding or implementation fees.
- One-off projects and hourly services.
- Free trials and free plans.
- Usage charges that swing a lot from month to month, unless you report them on their own line.
- Taxes and refunds.
What is ARR?
ARR, or annual recurring revenue, is the yearly value of your recurring contracts. Companies that sell annual or multi-year contracts tend to lead with ARR, because a yearly number matches how their customers sign.
For a business on monthly plans, ARR is a projection: MRR times 12. It assumes nobody cancels, upgrades or downgrades for a year, so treat it as a snapshot of today, not a forecast.
MRR vs ARR: the difference
| MRR | ARR | |
|---|---|---|
| Period | One month | One year |
| Formula | Sum of monthly recurring fees | MRR × 12, or the yearly value of recurring contracts |
| Best for | Monthly plans, early-stage companies | Annual contracts, larger customers |
| Helps you | Spot changes fast: a lost customer shows up next month | Plan, hire and talk to investors |
| Watch out for | Annual payments booked as one big month | Treating it as guaranteed revenue |
Most small software companies track MRR every month and quote ARR when someone asks how big the business is. You don't have to pick one.
How to calculate MRR
Add up what each paying customer pays per month for their subscription. Turn every annual plan into a monthly amount by dividing it by 12.
MRR = the sum of monthly recurring fees from all paying customers
Here is an example for a small software company:
| Plan | Customers | Monthly value each | MRR |
|---|---|---|---|
| Starter, $49 a month | 40 | $49 | $1,960 |
| Team, $199 a month | 15 | $199 | $2,985 |
| Annual plan, $6,000 a year | 4 | $500 | $2,000 |
| Total | 59 | $6,945 |
The four annual customers paid $24,000 up front, but they count as $2,000 a month. Booking all $24,000 in the month it was paid would make that month look huge and the next eleven look like a collapse.
A shortcut: MRR = paying customers × average revenue per account (ARPA). Here, 59 customers at about $117.71 each gives the same $6,945.
How to calculate ARR
For monthly plans: ARR = MRR × 12. In the example above, $6,945 × 12 = $83,340.
For annual contracts, add the yearly recurring value of every active contract. A three-year contract worth $36,000 counts as $12,000 of ARR, not $36,000.
Leave out the same things as in MRR: setup fees, services and one-time charges.
The five MRR movements
Your total MRR hides what happened during the month. Split it into five movements and you can see why it went up or down:
- New MRR: revenue from customers who started paying this month.
- Expansion MRR: existing customers who upgraded, added seats or bought an add-on.
- Contraction MRR: existing customers who downgraded.
- Churned MRR: customers who cancelled.
- Net new MRR = new + expansion - contraction - churned.
An example month:
| Movement | Amount |
|---|---|
| New MRR | +$1,200 |
| Expansion MRR | +$400 |
| Contraction MRR | -$150 |
| Churned MRR | -$500 |
| Net new MRR | +$950 |
If churned MRR keeps growing while new MRR stays flat, you have a retention problem, not a sales problem. Our guide to churn rate shows how to measure it.
Common MRR mistakes
- Counting one-time fees. A $2,000 setup fee is real revenue, but it doesn't repeat. Put it on its own line.
- Booking annual plans in one month. Spread them over 12 months.
- Counting trials and deals that haven't started. MRR starts when the customer starts paying. Track signed deals that haven't started on their own if you want to see what's coming.
- Ignoring discounts. Count what the customer actually pays.
- Removing cancellations at random times. Take a customer's MRR out in the month their service ends, the same way every month.
- Mixing cash and MRR. The cash you collected in a month and your MRR are different numbers. Both are useful; just don't add them together.
Where to track MRR and ARR
A spreadsheet works for your first customers. It gets hard once you have upgrades, downgrades and annual plans, because someone has to update every row by hand.
Billing tools calculate MRR from your subscriptions, but they only see who paid. They don't see the deal that's about to close, the support conversation that shows a customer is unhappy, or the meeting where they asked for a feature.
Alori is the all-in-one app that keeps those pieces together. On each deal, add the products and how often each one is billed, and Alori adds up the MRR, the ARR and the first-year value. The deals board shows the open MRR in your pipeline, with your own stages, such as Trial, Paid and Churned. The same customer record holds their support conversations and recorded meetings. See Alori for SaaS companies and the deals app.
To be clear about what isn't built yet: Alori doesn't bill subscriptions automatically today. You send invoices from Alori with a pay-by-card link, and track recurring revenue on deals. Automatic recurring billing is coming soon.
Frequently asked questions
Is ARR just MRR times 12?
For monthly plans, yes: ARR is MRR × 12. For annual or multi-year contracts, ARR is the yearly recurring value of each contract. Either way, it's a snapshot of today's recurring revenue, not a promise of next year's.
Do annual contracts count in MRR?
Yes. Divide the annual amount by 12 and count that every month of the contract. A $12,000 annual plan adds $1,000 of MRR.
Should setup fees be included in MRR?
No. Setup, onboarding and implementation fees happen once, so they stay out of MRR and ARR. Report them as one-time revenue.
What's the difference between ARR and revenue?
Revenue is everything you earned in a period, including one-time fees and services. ARR only counts the recurring part, projected over a year. A company can earn $500,000 in a year and have $300,000 of ARR.
When should a company report ARR instead of MRR?
Lead with ARR when most of your customers sign annual contracts, or when you talk to investors and buyers who expect it. Keep MRR as your monthly working number either way.
Track recurring revenue next to everything else
Add your deals, products and billing frequency, and see your MRR and ARR on the same screen as your customers, support and meetings. Alori is free to start, with no credit card. Build your app now.