# ARR vs MRR: What Is the Difference and When to Use Each

Canonical: https://www.b2blead.io/blog/arr-vs-mrr
Description: ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) are both measures of a SaaS business's subscription revenue. Learn the difference, when each is used, and how to calculate them.
Date: 2026-06-27
ReadTime: 5 min
Tags: SaaS, SaaS Metrics, B2B SaaS

ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) are two ways of measuring the same thing: the predictable, recurring revenue a SaaS business generates from active subscriptions. The difference is the time period -- monthly vs annual -- and the contexts in which each is most useful.

## What is MRR?

MRR is the sum of all subscription revenue normalised to one month. If a customer pays INR 60,000 annually, their contribution to MRR is INR 5,000. MRR is used for day-to-day and month-to-month operational decisions because it reflects the current run-rate of the business in the shortest useful period.

## What is ARR?

ARR is the annualised version of MRR -- calculated as MRR x 12. It normalises all subscription revenue to a one-year timeframe. ARR is the headline metric for investor decks, board reporting, and benchmarking against other SaaS businesses. A company with INR 5 lakh MRR has INR 60 lakh (INR 0.6 crore) ARR.

## ARR vs MRR: the key differences

- Timescale: MRR = monthly view; ARR = annual view
- Formula: ARR = MRR x 12
- Use case: MRR for operational decisions (is growth accelerating or slowing this month?); ARR for strategic planning and investor reporting
- Contracts: ARR is most natural when most contracts are annual; MRR is most natural when contracts are monthly
- Sensitivity: MRR changes are visible immediately; ARR changes are smoother and easier to forecast

## When to use ARR vs MRR

Use MRR when you are running the business operationally -- tracking growth month by month, measuring cohort retention, setting monthly quotas. Use ARR when you are telling the story of the business -- investor updates, board presentations, benchmarking against industry peers, and calculating headcount capacity models.

## What goes into MRR (and therefore ARR)

- Include: monthly subscription fees, normalised annual contract fees (ACV / 12)
- Exclude: one-time setup fees, professional services fees, variable usage charges (unless contracted)
- Include: committed expansion revenue (e.g. a signed upgrade that takes effect next month)

## MRR movement: new, expansion, contraction, and churn

MRR is best tracked as a waterfall showing all movement in a given month. New MRR: revenue from customers who signed up this month. Expansion MRR: upsells and cross-sells from existing customers. Contraction MRR: downgrades from existing customers. Churned MRR: revenue lost from customers who cancelled. Net new MRR = New + Expansion - Contraction - Churn.

## ARR milestones in SaaS

ARR milestones are commonly used as growth benchmarks. $1M ARR signals product-market fit and readiness for a proper sales motion. $10M ARR is typically where Series B conversations start. $100M ARR is the threshold for serious IPO discussions. In India, these milestones apply to globally-priced SaaS; for India-market SaaS with lower ACV, the trajectory is similar but the absolute ARR numbers are lower.

## Frequently asked questions

**Q: What is the difference between ARR and MRR?**
A: MRR (Monthly Recurring Revenue) is the subscription revenue your business generates in a single month. ARR (Annual Recurring Revenue) is that same revenue extrapolated to a full year (ARR = MRR x 12). They measure the same thing on different timescales: MRR for operations, ARR for strategy and investor reporting.

**Q: Is ARR the same as revenue?**
A: No. ARR only counts contracted, recurring subscription revenue. One-time fees, professional services, and variable usage charges are excluded. Total GAAP revenue includes these, which is why a company's ARR and its reported revenue can differ significantly -- especially in early-stage companies with large services components.

**Q: Can ARR be higher than MRR x 12?**
A: No -- by definition, ARR = MRR x 12. If a company reports ARR higher than 12x MRR, they may be including non-recurring revenue, using a different definition (such as contracted ARR including future scheduled expansions), or there is an error in the calculation.

**Q: What is a good MRR growth rate for SaaS?**
A: The T2D3 rule (triple, triple, double, double, double) is a common benchmark for venture-backed SaaS: triple ARR for the first two years, then double for the next three. In practice, monthly MRR growth of 10-15% is exceptional; 5-7% is strong; below 3% suggests a challenge in either acquisition or retention.