What Is ARR vs. MRR

Introduction

In the world of subscription-based businesses, ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) are essential metrics for understanding and measuring revenue streams. In this article, we will explore the difference between ARR and MRR and their significance in assessing business performance.

1. ARR (Annual Recurring Revenue)

ARR refers to the annualized value of recurring revenue generated by a subscription-based business. It represents the predictable, contracted revenue that a company expects to receive within a year. ARR is calculated by multiplying the average monthly revenue by 12.

2. MRR (Monthly Recurring Revenue)

MRR, on the other hand, represents the monthly revenue generated by a subscription-based business. It reflects the predictable, contracted revenue that a company expects to receive on a monthly basis. MRR is calculated by summing up the monthly subscription fees across all customers.

3. Understanding the Difference

The main difference between ARR and MRR lies in the time period they represent. ARR provides an annualized view of revenue, while MRR focuses on a monthly basis. ARR gives a broader picture of overall business performance and revenue potential, while MRR provides insights into current monthly revenue streams.

4. Importance and Applications

Both ARR and MRR are critical metrics for subscription-based businesses. They help evaluate growth, track revenue stability, and forecast future performance. ARR is often used for long-term financial planning, while MRR provides a more immediate assessment of revenue generation and customer retention.

Conclusion

ARR and MRR are key metrics in the subscription-based business model. While ARR offers a comprehensive annual view of recurring revenue, MRR provides a snapshot of monthly revenue streams. By monitoring both metrics, businesses can gain valuable insights into their financial health, make informed decisions, and drive sustainable growth.