Article | June 19, 2018

Answers To Common Questions About MRR And ARR

Source: SaaSOptics

By Clayton Whitfield, SaaSOptics

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MRR is the most popular method of normalizing recurring revenues for subscription analytics. Normalized revenue provides a clearer picture of performance, especially when reported in categories relative to prior periods.

So, what's up with the less-talked-about cousin, ARR? Are there any real differences, other than the obvious? Why use ARR vs. MRR in your business? How will bankers and VCs react to ARR vs MRR?

The basics you need to know about ARR and MRR

MRR = Monthly Recurring Revenue. 
ARR = Annual Recurring Revenue

Is it really that simple? Monthly vs. Annual? Yes, it is. ARR is 12x MRR; MRR is ARR/12.

Why use ARR vs. MRR?

Objectively speaking, there really are no compelling reasons to standardize on ARR versus MRR. Class dismissed. For those wanting extra credit, read on.

ARR is used almost exclusively in B2B subscription businesses and only when the minimum subscription term is a year. But, MRR is by far and away the most popular normalized revenue method for B2B subscription businesses, even for those with annual subscription terms (by the way, ARR is rarely used in B2C subscription businesses).