What is MRR and ARR? Definition, Formula & Benchmarks

What is mrr and arr?

MRR (monthly recurring revenue) and ARR (annual recurring revenue) both measure predictable subscription revenue; ARR is simply MRR × 12. Startups on monthly plans track MRR for granularity, while annual-contract and enterprise businesses report ARR. Both exclude one-time fees like setup or services.

Formula

ARR = MRR × 12

MRRSum of all monthly recurring subscription revenue
ARRMRR annualized; used for annual-contract businesses

Worked example

120 customers each paying $500/month = $60K MRR, or $720K ARR. A one-time $10K onboarding fee is excluded from both because it isn't recurring.

Benchmarks by stage

Neither MRR nor ARR is a GAAP measure; both are management metrics that exclude non-recurring items like implementation fees.

Source: Ordway / ASC 606 guidance (2025)

Why it matters for fast-growing companies

MRR and ARR are the top-line that investors, boards, and your own model run on. Getting the definition clean, recurring only, excluding one-time fees, is what separates a fundable metric from an inflated one that gets picked apart in diligence.

Frequently asked questions

When should I use MRR vs ARR?+

Use MRR if you sell month-to-month or want granular, fast-moving visibility into changes. Use ARR if you sell annual or multi-year contracts, since it smooths monthly noise. Enterprise and later-stage startups report ARR; early PLG products usually live in MRR.

Does ARR include one-time fees?+

No. ARR and MRR count only recurring subscription revenue. One-time charges, like implementation, onboarding, training, or professional services, are excluded because they don't repeat. Including them inflates the metric and misleads investors about how much revenue actually recurs.

MRR and ARR