MRR vs ARR vs Revenue: Understanding SaaS Metrics in 2025
The complete guide to recurring revenue metrics every SaaS founder needs to master
Table of Contents
- 1. Why These Metrics Matter for SaaS
- 2. What is MRR (Monthly Recurring Revenue)?
- 3. What is ARR (Annual Recurring Revenue)?
- 4. Total Revenue vs Recurring Revenue
- 5. MRR vs ARR: Which Should You Track?
- 6. How to Calculate MRR and ARR (With Examples)
- 7. MRR Variations: New, Expansion, Contraction, Churn
- 8. Common Mistakes When Calculating MRR/ARR
- 9. Tools for Tracking MRR and ARR
- 10. Key Takeaways and Best Practices
1. Why These Metrics Matter for SaaS
You've just launched your SaaS product. A customer subscribes for $29/month. Another pays $299/year. You also get a one-time setup fee of $99. So... what's your revenue? What's your MRR? What's your ARR?
If you're confused, you're not alone. The difference between MRR, ARR, and total revenue is one of the most misunderstood concepts in SaaS—and getting it wrong can lead to terrible business decisions.
Real Example: The $100k Mistake
A founder once told investors they had "$100k MRR" because they had 10 customers paying $10k/year upfront. Reality? Their actual MRR was $8.3k. This miscalculation almost cost them their Series A funding when due diligence revealed the truth.
In this guide, you'll learn:
- The exact definitions of MRR, ARR, and total revenue
- How to calculate each metric correctly (with real examples)
- Which metric matters most at different stages of growth
- Common mistakes to avoid that could mislead investors or yourself
- The best tools to automate tracking these metrics
2. What is MRR (Monthly Recurring Revenue)?
Definition
MRR (Monthly Recurring Revenue) is the predictable revenue your business generates every month from active subscriptions, normalized to a monthly value.
Key Characteristics of MRR
Predictable
MRR represents recurring revenue you can count on next month (assuming no cancellations).
Normalized
Annual, quarterly, and weekly subscriptions are all converted to their monthly equivalent.
Subscription Only
MRR excludes one-time fees, usage charges, and variable revenue.
Active Subs Only
Only counts subscriptions that are currently active—not canceled or expired.
Simple MRR Formula
Or more precisely: Sum of all subscription values normalized to monthly amounts
Real Example
Your SaaS has:
- 150 customers paying $29/month = $1,450/month
- 210 customers paying $240/year = $20/month each = $200/month total
- 35 customers paying $99/quarter = $33/month each = $165/month total
Your Total MRR: $1,450 + $200 + $165 = $1,815
3. What is ARR (Annual Recurring Revenue)?
Definition
ARR (Annual Recurring Revenue) is the value of recurring revenue normalized to a one-year period. It's typically used by SaaS companies with annual contracts or high MRR ($100k+).
ARR Formula (Simple Version)
If you have $10,000 MRR, your ARR is $120,000
When to Use ARR vs MRR
Use MRR When...
- ✅ You have monthly subscriptions
- ✅ Your MRR is under $100k
- ✅ You need to track month-to-month growth
- ✅ You're in early-stage (seed, pre-Series A)
- ✅ You want granular insights
Use ARR When...
- ✅ You sell annual contracts
- ✅ Your MRR is over $100k
- ✅ Talking to enterprise investors
- ✅ You're Series A+ stage
- ✅ Comparing to large competitors
💡 Pro Tip: Most early-stage SaaS companies should focus on MRR because it provides more actionable insights. Switch to ARR when you hit $100k+ MRR or when raising Series A+.
4. Total Revenue vs Recurring Revenue
Here's where many founders get confused: Total Revenue ≠ MRR
Total Revenue Includes:
1. Recurring Revenue (MRR)
Subscriptions that repeat monthly
2. One-Time Fees
Setup fees, onboarding charges, implementation costs
3. Usage-Based Charges
Variable fees based on API calls, storage, users, etc.
4. Professional Services
Consulting, training, custom development
5. Other Non-Recurring Revenue
Affiliate commissions, ad revenue, etc.
Example: Total Revenue vs MRR
📊 Key Point: Your total revenue was $21,700, but your MRR is only $15,000. Next month, you can't count on that extra $6,700 because it was non-recurring. This is why MRR is more important than total revenue for SaaS.
5. MRR vs ARR: Which Should You Track?
The short answer: Track both, but emphasize MRR in the early days.
Stage 1: $0 - $10k MRR (Focus on MRR)
At this stage, every customer matters. Track MRR to understand:
- Month-over-month growth rate
- Which pricing plans convert best
- Impact of each new customer
- Churn patterns
Stage 2: $10k - $100k MRR (MRR Primary, ARR Secondary)
You're growing fast. MRR is still your North Star metric, but start calculating ARR for:
- Investor conversations (they'll ask for ARR)
- Benchmarking against competitors
- Long-term forecasting
Stage 3: $100k+ MRR (ARR Primary, MRR for Operations)
You're at scale. Use ARR for:
- Board meetings and investor updates
- Public announcements and press releases
- Strategic planning
But keep tracking MRR internally for operational decisions.
6. How to Calculate MRR and ARR (With Examples)
Step-by-Step MRR Calculation
1List All Active Subscriptions
Customer B: $299/year
Customer C: $99/quarter
Customer D: $29/month
Customer E: $49/month
2Convert All to Monthly Values
Customer B: $299/year ÷ 12 = $24.92/month
Customer C: $99/quarter ÷ 3 = $33/month
Customer D: $29/month = $29/month
Customer E: $49/month = $49/month
3Sum All Monthly Values
Common Scenarios
Scenario 1: Customer Pays Annually Upfront
Customer pays $1,200 for a yearly subscription on January 1st.
Revenue in January: $1,200 (but still only $100 MRR)
Scenario 2: Customer Upgrades Mid-Month
Customer on $29/month plan upgrades to $99/month on the 15th.
Next month MRR: Full $99/month
Scenario 3: Customer Cancels but Subscription Runs to End
Customer on $49/month cancels on Feb 10th, but subscription is active until Feb 28th.
March MRR: $0 (subscription ended)
7. MRR Variations: New, Expansion, Contraction, Churn
Understanding how your MRR changes is just as important as the number itself.
New MRR
Revenue from brand new customers who subscribed this month.
Expansion MRR
Additional revenue from existing customers upgrading their plans.
Contraction MRR
Lost revenue from existing customers downgrading their plans.
Churned MRR
Lost revenue from customers who canceled their subscriptions.
Net New MRR Formula
Net New MRR = +$145 + +$70 - $70 - $87 = +$58 Net New MRR
8. Common Mistakes When Calculating MRR/ARR
Mistake #1: Counting Annual Payments as 12x MRR
Wrong: Customer pays $1,200/year → "I have $1,200 MRR!"
Right: Customer pays $1,200/year → You have $100 MRR ($1,200 ÷ 12)
Mistake #2: Including One-Time Fees in MRR
Wrong: $29/month subscription + $99 setup fee = "$128 MRR"
Right: Only the $29/month subscription counts. MRR = $29
Mistake #3: Not Normalizing Different Billing Cycles
Wrong: Adding $29/month + $99/quarter directly = "$128 MRR"
Right: Convert quarterly to monthly first: $29 + ($99÷3) = $62 MRR
Mistake #4: Counting Canceled Subscriptions
Wrong: Keeping canceled customers in your MRR calculation
Right: Only count active subscriptions. Remove canceled ones immediately.
Mistake #5: Confusing MRR with Cash Flow
Customer pays $1,200 upfront in January. Your bank account shows +$1,200.
But your MRR is only +$100. MRR ≠ cash in bank. It's a health metric, not cash flow.
9. Tools for Tracking MRR and ARR
Manual calculation works for 5-10 customers, but as you scale, you need automation.
MultiMMR (Best for Multi-Account Tracking)
Purpose-built for founders managing multiple Stripe accounts. Automatically calculates MRR/ARR across all your products.
Stripe Dashboard (Built-In, Free)
Stripe shows basic MRR in the dashboard, but only for one account at a time.
Limitation: Can't consolidate multiple Stripe accounts
ChartMogul / Baremetrics (Enterprise)
Professional analytics platforms with advanced features like cohort analysis and forecasting.
Pricing: $100-300/month • Best for $500k+ ARR companies
Spreadsheets (Manual, Free)
Good for getting started, but becomes unsustainable after 10-20 customers.
Time cost: 2-4 hours/month for manual updates
10. Key Takeaways and Best Practices
Quick Reference Guide
What is MRR?
Monthly Recurring Revenue = predictable subscription revenue normalized to a monthly value. Excludes one-time fees and variable charges.
What is ARR?
Annual Recurring Revenue = MRR × 12. Use when you're $100k+ MRR or talking to investors.
MRR vs Total Revenue
MRR = recurring only. Total Revenue = MRR + one-time fees + usage charges + services. MRR is more important for understanding business health.
How to Calculate
MRR = Sum of (all active subscriptions converted to monthly values)
ARR = MRR × 12
Common Mistakes
- Don't count annual payments as 12x MRR
- Don't include one-time fees
- Don't forget to normalize billing cycles
- Don't count canceled subscriptions
Final Recommendations
Early stage ($0-$10k MRR): Focus exclusively on MRR. Track it weekly. Understand what drives growth.
Growth stage ($10k-$100k MRR): Track MRR for operations, calculate ARR for investors and benchmarking.
Scale stage ($100k+ MRR): Emphasize ARR publicly, but keep monitoring MRR components (new, expansion, churn) internally.
Automate from day one: Don't waste time on manual calculations. Use tools like MultiMMR to track automatically.
Track components: Not just total MRR, but New, Expansion, Contraction, and Churned MRR to understand the full picture.
Frequently Asked Questions
Is ARR just MRR times 12?
Yes, for most SaaS companies. ARR = MRR × 12. However, some companies only count customers on annual contracts in their ARR, excluding monthly subscribers. The "MRR × 12" method is more common and simpler.
Should I count free trials in MRR?
No. Only count paying subscriptions in MRR. Free trials don't contribute to MRR until they convert to paid plans.
What about usage-based pricing?
If you have a base subscription + variable usage fees, only count the base subscription in MRR. Usage fees are considered "variable revenue" and don't count toward MRR because they're not predictable month-to-month.
How do I handle discounts and coupons?
Use the actual amount the customer pays. If someone is on a $99/month plan but has a 50% discount, their contribution to MRR is $49.50, not $99.
When should I report MRR vs ARR to investors?
Use MRR in seed rounds and early Series A. Switch to ARR for later rounds (Series A+) or when your MRR exceeds $100k. Investors at later stages prefer ARR because it's easier to benchmark against larger companies.
Can MRR go down?
Yes! MRR can decrease if you lose customers (churn) or if customers downgrade. This is why tracking Net New MRR (new + expansion - contraction - churn) is so important. You want Net New MRR to be positive every month.