Three numbers that sound similar and get mixed up constantly:
| Metric | What it is | Question it answers |
|---|---|---|
| MRR | recurring subscription revenue, per month | "What are my subscriptions worth right now?" |
| ARR | MRR × 12 | Same thing, on a yearly scale |
| Revenue | money earned in a period (accounting) | "What did we actually earn last quarter?" |
| Cash | money in the bank | "How long until we run out?" |
How to calculate MRR
Add up the monthly value of every active, paying subscription:
MRR = Σ (each active subscription's price, normalised to one month)
Normalising:
| Plan | Monthly value |
|---|---|
| 9 per month | 9 |
| 90 per year | 7.50 (90 ÷ 12) |
| 25 per quarter | 8.33 (25 ÷ 3) |
Example: 300 monthly subscribers at 9, plus 100 annual subscribers at 90.
MRR = 300 × 9 + 100 × 7.50 = 2,700 + 750 = 3,450 ARR = 3,450 × 12 = 41,400
That annual cohort paid 9,000 in cash upfront, but it adds only 750 to MRR. That's correct. MRR measures the run rate, not the cash.
What NOT to include
- One-off fees: setup, onboarding, consulting. Revenue, but not recurring.
- Free trials and free plans. Zero.
- Discounts at list price. Use what the customer actually pays. A 50%-off first month counts at the discounted amount.
- Failed payments past your retry window. Those customers have churned.
- Taxes (VAT/GST) and, for app stores, the store's cut. Report net revenue, or say clearly that you're reporting gross.
- Usage spikes. If billing is usage-based, use a trailing average for the usage part, and say so.
The pattern: if it wouldn't happen again next month with no new sales, it isn't MRR.
The MRR movement breakdown
Total MRR hides what's going on. Break each month's change into five parts:
ending MRR = starting MRR + new MRR (new customers) + expansion MRR (upgrades, extra seats) − contraction MRR (downgrades) − churned MRR (cancellations) + reactivation MRR (returning customers)
| Month | |
|---|---|
| Starting MRR | 10,000 |
| + New | 1,500 |
| + Expansion | 400 |
| − Contraction | 150 |
| − Churned | 600 |
| Ending MRR | 11,150 |
Net new MRR is 1,150. But this shows that churn is eating 40% of new sales (600 ÷ 1,500). The headline number alone wouldn't tell you that. More on that in How to Calculate Churn Rate.
ARR vs "run rate"
- ARR should mean recurring subscriptions × 12.
- Revenue run rate often means last month's total revenue × 12, including one-off and usage revenue.
Founders sometimes say "ARR" when they mean run rate, because run rate is bigger. Investors know the difference. If you use run rate, call it that.
Revenue: the accounting number
Revenue follows accounting rules (recognised over the service period). An annual plan paid upfront is recognised as revenue 1/12 per month, and the rest sits as deferred revenue. For an early-stage subscription business, monthly recognised revenue will be close to MRR, but it isn't the same number. Your accountant, not your dashboard, owns it.
Which to report when
| Stage | Lead with |
|---|---|
| Early consumer app, monthly plans | MRR, plus the movement breakdown |
| B2B with annual contracts | ARR |
| Board / investor updates | MRR or ARR plus net new, churn, and cash runway |
| Tax and statutory filings | Revenue |
An honest-reporting checklist
- Say whether numbers are gross or net of app store fees and tax.
- Exclude one-off and trial revenue from MRR/ARR.
- Show the movement breakdown, not only the total.
- Use the same definitions every month. If you change one, say so and restate past months.
- Put cash runway next to MRR. A growing MRR doesn't help if you run out of cash first.
Track progress toward a goal with a model like The Math of $1M MRR.