ARR and MRR
ARR (annual recurring revenue) and MRR (monthly recurring revenue) measure the predictable, subscription-style revenue a business can count on over the next year or month, based on active subscriptions and contracts at a point in time. They exclude one-time sales, and MRR is simply ARR divided by twelve, or vice versa.
ARR and MRR are snapshot measures: they take the subscriptions and recurring contracts active right now and annualize or monthly-ize that figure, rather than reporting what was actually billed last month or last year. That makes them forward-looking in a way ordinary revenue reporting isn’t.
Why software and membership businesses lean on them
For a subscription business, ARR and MRR strip out the noise of one-time setup fees or occasional add-on sales and isolate the durable core of the business. Growth or decline in ARR month over month is often watched more closely than total revenue, because it shows whether the recurring base itself is expanding.
What to check before trusting the figure
ARR can be inflated by counting customers who are about to cancel, or by including revenue that isn’t actually contractually locked in. A careful buyer reconciles reported ARR against actual billing history and churn, rather than accepting a forward-looking figure at face value.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryGetting a Business Valuation Before You List
- 02Treadstone LawLegal commentaryAre Your Contracts Assignable?
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