Key Takeaways

• MRR answers what changed last month; ARR answers how big the business is. Boards read ARR, operators read MRR.

• MRR times 12 is a shortcut, not a definition. On a book with an annual prepay, a mid-month start, a $15,000 setup fee and $8,000 of overage, it returns $672,000 against a built ARR of $432,000: a 55.6% overstatement.

• ARR is two metrics wearing one acronym: annualized run rate is MRR times 12, annual recurring revenue is contract value divided by contract years.

• Neither metric was designed for metered revenue, so public filings annualize a trailing window: Datadog uses the latest month, MongoDB and Confluent the prior 90 days of actual usage.

• One-time fees belong in neither number: implementation, migration, training and professional services sit outside both.

Which number belongs in a board deck and which one belongs in your weekly review?

ARR goes outward and MRR goes inward. Investors and valuation models run on ARR because it sizes the business in one figure. Operators need MRR because a month is the shortest window where a pricing change or a cancellation shows up.

Where each metric earns its place:

The mistake I see most often: a team reporting ARR internally because the board deck does. Annualizing hides the month you needed to look at.

Why doesn't MRR times 12 give you the right ARR?

Because the month you're multiplying rarely holds twelve clean months of recurring revenue, so every distortion in it lands in the annual figure twelve times over.

The same customer book, priced both ways for August:

The shortcut overstates by 55.6%, and each line fails differently. The prepay normalizes cleanly. The mid-month start understates by $36,000, the setup fee alone overstates by $180,000, and the overage adds $96,000 nobody committed to. Non-recurring charges stay out of annual contract value for the same reason.

Two traps sit behind the arithmetic:

• ARR means two different things. Annualized run rate is MRR times 12. Annual recurring revenue is total contract value divided by contract years, and drops contracts shorter than 12 months. Teams argue about the number when they're using different metrics.

• Day counts differ. Clearwater Analytics divides the last month's recurring revenue by the days in that month and multiplies by 365, which isn't the same answer as times 12 in a 31-day month.

What happens to MRR and ARR when most of the revenue is metered?

Both lose their footing, because a metered customer has no recurring amount to normalize. Recurring revenue assumes a repeatable rate; consumption gives a result you can only measure afterwards.

Public filings show no settled convention. Ben Murray's manual review of 160+ public tech company SEC filings found these live approaches:

• Datadog takes monthly run-rate revenue times 12, folding additional usage into that MRR alongside committed amounts.

• MongoDB annualizes the prior 90 days of a customer's actual usage, excluding professional services.

• Confluent projects 12-month consumption from three months of actual usage, and warns in its own filing that this ignores future fluctuations.

• Rubrik annualizes active subscription contracts, assuming contracts expiring within 12 months renew.

• No pure-usage public company in that review defined ARR at all, Snowflake included.

So one ARR figure stops being comparable across companies the moment consumption enters the mix. On a consumption-priced book I'd report committed and consumption revenue as two lines and state the window in writing, which keeps the committed line honest against contracted ARR. The window matters: 90 days smooths a seasonal spike that one month turns into permanent growth.

Related terms

MRR and ARR read better against these four.

• MRR movements break a monthly change into the components that caused it.

• Net revenue retention measures what an existing cohort does to revenue over time.

• Gross revenue retention strips expansion out of that measurement.

• Consumption-based pricing generates the revenue neither metric annualizes cleanly.

FAQ

Does ARR mean annual recurring revenue or annualized run rate?

Both, and the ambiguity is the acronym's own fault. Annualized run rate takes the latest MRR and multiplies by 12. Annual recurring revenue divides total contract value by contract years and, strictly applied, excludes contracts shorter than 12 months. Say which you mean before anyone compares numbers.

Do MRR and ARR include one-time fees?

No. Implementation, migration, training and professional services revenue stays out of both, because neither metric measures cash collected, it measures revenue that repeats without a new sale. A setup fee inside MRR is worse still: multiplying carries it into ARR twelve times over.

Should an early-stage startup report MRR or ARR?

MRR, until the numbers are large enough that annualizing tells anyone something. Below roughly $1M annualized, month-over-month movement is the whole signal, and quoting ARR on a few thousand dollars a month invites a reader to divide it back out.

How often should you recalculate MRR and ARR?

Recalculate MRR every time the billing period closes and restate ARR from it on the same cadence, monthly for most companies. Quarterly recalculation leaves a churned enterprise account in the headline number for up to three months. Metered revenue on a trailing window is the exception, since the window already sets the refresh rate.