MRR and ARR

Monthly recurring revenue (MRR) is the subscription revenue a business bills in a given month, counting only charges that repeat. Annual recurring revenue (ARR) is that figure multiplied by twelve.

What they mean at this size

MRR is how businesses in the $50,000–$150,000 band are described, because it is the fastest way to say what the thing does. It is also where most pricing mistakes start. A buyer wants to know what the business earns after costs, and MRR sits several steps above that.

Annual plans belong in MRR at one twelfth of their value in each month they cover, not in full in the month they were charged. One-off setup fees, consulting work and refunded payments stay out entirely.

Where it bites

ARR is a run rate, not a year's trading. On a growing business it overstates what the trailing twelve months actually produced, and on a shrinking one it flatters the present. Buyers rebuild both figures from payment processor data and compare them with the bank, and a seller whose MRR does not reconcile has a longer diligence ahead of them.

Worked example

A micro-SaaS at $3,000 MRR has $36,000 of ARR. Hosting, email and processing take $4,800, support contracting takes $3,000, and $600 of annual tooling is genuinely required. SDE comes to $27,600.

At the market convention of 3× trailing annual profit for micro-SaaS, the business is worth roughly $83,000. Nobody pays $36,000 for the ARR, and nobody pays a multiple of it either. To clear $120,000 on the same margins, MRR needs to sit closer to $4,300 for a full twelve months.

Why it matters when you exit

MRR and ARR are how you get a buyer's attention, and profit is how you get their money. Publish both, keep the definitions clean, and show the month-by-month series rather than the current figure. A steady $3,000 across twelve months is worth considerably more than $3,000 reached last Tuesday.

Related: churn, net-revenue-retention, trailing-twelve-months, what-to-pay-for-3000-mrr