The two metrics that define a subscription business — and the difference between them is more than a multiply-by-twelve.
MRR is monthly recurring revenue — the predictable subscription income you expect every month. ARR is annual recurring revenue, the yearly run-rate. Both deliberately exclude one-time fees so you're measuring only repeatable income.
MRR = Customers × Average Monthly Revenue per Customer. With 200 customers at $50/month, MRR is $10,000. ARR = MRR × 12, or $120,000 here.
MRR is best for tracking month-to-month momentum and short-term changes. ARR describes the size and run-rate of the business and is the figure used in fundraising and valuation. Companies with annual contracts tend to lead with ARR.
Real MRR moves from four forces: new customers, expansion (upgrades), contraction (downgrades), and churn (cancellations). Net New MRR = New + Expansion − Contraction − Churn.
Watch all four components, not just the headline. Strong new sales can mask heavy churn that's quietly capping your growth.
Recurring revenue is predictable and compounds, which makes it far more valuable than one-time sales. That's why SaaS businesses are often valued as a multiple of ARR, and why keeping churn low is essential — every lost customer shrinks the base future growth builds on.