MRR and ARR: what they are, how to calculate them and where growth comes from

MRR (monthly recurring revenue) is how much customers pay for a subscription every month. ARR is the same for a year: MRR × 12.

MRR = paying customers × average monthly price

What counts and what doesn't

Subscriptions count at the price the customer actually pays, after discounts. One-off payments don't count: implementation, training, setup. A $6,000 annual payment is $500 of MRR every month, not $6,000 in the month it was paid.

Where growth comes from

It helps to break down where a change came from. Example: MRR was $25,000 at the start of the month.

• new customers: +⁠$3,000
• customers moved to a more expensive plan: +⁠$750
• customers left: −⁠$1,750
• customers moved to a cheaper plan: −⁠$250

At the end of the month it's $26,750, growth of 7%. A single total would hide that the customers who left took away more than half of what the new ones brought.

Common mistakes

• Adding one-off payments. MRR jumps around and can't be compared from month to month.
• Booking an annual payment in full in the month the money arrived.
• Counting trial users as paying.
• Confusing MRR with cash in the bank. Money from annual contracts arrives before it's "earned".

In Runway 200

MRR is paying customers times the average price. The price includes the add-ons customers pay on top of the plan for roles and integrations. The weekly report shows what the number is made of. If you decide to sell the company, the buyer will look not at MRR on its own but at growth together with margin — the so-called rule of 40.

More in the glossary: Burn rate · CAC · Cohort · LTV · Product-market fit · all terms