ARR is the number you announce, MRR (monthly recurring revenue) is the one you watch. The distinction is not trivial: it explains why the same metric can be perfectly useful in a conversation and perfectly misleading on a dashboard.
Definition
ARR, annual recurring revenue, is subscription revenue projected over twelve months. It is calculated by multiplying current MRR by twelve.
So it is not a measure of what was collected over the past year, but a projection of what the coming year would bring if nothing changed. That is where the whole misunderstanding sits.
ARR and annual revenue are different things. A company reaching €10,000 of MRR in December reports €120,000 of ARR, while it may have collected €40,000 over the year. Both figures are correct, they answer different questions.
When it helps and when it hurts
| Use | Verdict |
|---|---|
| Comparing two companies | Useful, that is its purpose |
| Communicating size | Useful, it reads instantly |
| Steering month to month | Useless, movement is diluted by twelve |
| Forecasting cash | Dangerous, it says nothing about collections |
The last row deserves to be taken seriously. Comfortable ARR does not prevent an empty bank account if your subscribers pay monthly and your costs land quarterly.
The magnifying effect on movement
A structural flaw of ARR is that it multiplies everything by twelve, accidents included. A month where three large customers leave drops ARR by tens of thousands, which feels catastrophic while the month's Churn rate may be perfectly normal.
Symmetrically, a good sales week sends ARR up spectacularly. That amplification is why ARR gets communicated and MRR gets steered by.
Committed ARR and run-rate ARR
Two versions circulate under the same three letters, and confusing them is how honest people end up overstating.
Run-rate ARR takes the current month and multiplies by twelve. It is the common version, and the fragile one: it assumes every current subscriber stays a year, which your Churn rate says they will not.
Committed ARR counts only contractually committed revenue, typically annual contracts already signed. It is much lower and much more solid, because it does not project anything.
For a business selling month to month, the honest correction is to weight run-rate ARR by your actual retention. At 5 percent monthly churn, roughly 54 percent of today's subscribers are still there in twelve months, so the headline figure is comfortably optimistic.
Frequently asked questions
ARR or MRR, which should I track?
MRR internally, ARR externally. MRR breaks down into new, expansion, contraction and churn, which ARR cannot show month to month. If you keep only one for decisions, keep MRR.
Can you have ARR without subscriptions?
No, by definition: the R stands for recurring. Reporting ARR from one-off sales is a common and easily spotted error, since nothing guarantees those sales repeat next year.
How do I count a multi-year contract?
At its annual value, not its total. A three-year contract worth €30,000 counts as €10,000 of ARR. Counting the €30,000 would stack three years of revenue into a metric that measures one.