MRR vs ARR: what's the difference, and which should you track?

The difference

They measure the same thing at two scales.

• MRR (monthly recurring revenue) is what your active subscriptions are worth each month. Stripe defines it as “the sum of the monthly-normalized value of all your active and past_due subscriptions” (Stripe: Billing analytics). “Monthly-normalized” means a yearly plan counts as a twelfth of its price each month.
• ARR (annual recurring revenue) is that value expressed per year. For a subscription business the usual calculation is MRR × 12.

So the conversion is simple: ARR = MRR × 12, and MRR = ARR ÷ 12. The hard part isn’t the arithmetic, it’s deciding what goes in. (Each term has its own page: MRR and ARR.)

What belongs in neither

Both numbers count only revenue that repeats on its own. Leave out:

• One-off payments: a single purchase, a lifetime deal, a paid consultation.
• Setup and onboarding fees: they’re paid once and won’t come again next month.
• Usage spikes: one customer’s unusually large month of overage. Stripe leaves metered prices out of MRR entirely because usage can change a lot from month to month (Stripe support: understanding MRR).
• Trials and free plans: Stripe excludes subscriptions still in a trial and subscribers on free plans (Stripe: Billing analytics).
• Taxes: they’re collected for someone else, and Stripe doesn’t count them as revenue (Stripe support: understanding MRR).

If a number includes any of these, it’s a revenue figure, not MRR or ARR.

Worked example (made-up numbers)

You have 40 customers on a $15 monthly plan and 10 on a $120 yearly plan. This month one new customer also paid a $300 setup fee.

• Monthly plans: 40 × $15 = $600.
• Yearly plans, spread over the year: 10 × $120 ÷ 12 = $100.
• MRR: $700. ARR: $700 × 12 = $8,400.
• The $300 setup fee: revenue this month, but in neither number.

In the month the ten yearly customers renew, $1,200 lands in your account. MRR still counts them as $100, because that’s what their subscriptions are worth per month.

Which one to track

Track MRR if most customers pay monthly. It’s in the unit your customers pay in, so this month’s number compares directly with last month’s and with your price list.

ARR suits products sold on yearly contracts, where prices are quoted and agreed per year: ARR is then in the same unit as the contracts behind it.

Because ARR is MRR × 12, a new signup or a cancellation moves both at the same moment; neither shows a change sooner. You don’t have to choose forever: pick one to watch week to week and convert when someone asks for the other.

Common mistakes

1. Counting an annual prepayment as one month’s MRR. A customer paying $120 for the year adds $10 to MRR, not $120. Doing it the other way makes the renewal month look like a boom and the next month like a crash.
2. Including trials. A trial that hasn’t paid yet is a hope, not revenue. Count it when it converts.
3. Multiplying a lucky month by twelve. If this month’s MRR includes a one-off fee or an overage spike, ARR repeats that mistake twelve times.
4. Keeping cancelled subscriptions because they’re paid until the end of the period. They won’t renew, so take them out when you plan.
5. Adding currencies together. Keep dollars and euros apart, or convert at one fixed rate.
6. Comparing numbers from two tools. Tools differ on discounts and trials, so compare a number with itself over time, not with another tool’s.

With Nordva Launch

Launch reads your Stripe subscriptions with a restricted key (GET requests only, every plan can connect) and shows MRR per currency, with the number of new and cancelled subscriptions and the net change in MRR. Yearly plans are spread over twelve months; trials and metered prices are left out. It shows MRR, not ARR: multiply by twelve when you need the yearly figure. It reads 30 days of history on Free, 90 on Indie and 730 on Builder. Try the demo to see it with example data.