Both ARR and MRR measure subscription revenue, but they're used in different contexts. Here is the convention that most investors and board members expect.
ARR vs. MRR: the rule of thumb
Use ARR for: investor updates, term sheet negotiations, valuations, public comparisons, and anything with an annual time horizon.
Use MRR for: monthly operational reviews, churn analysis, growth rate tracking, sales team quotas, and finance budgeting.
When does ARR = MRR × 12?
Always — ARR is simply MRR × 12. The question is which frame of reference you use. Reporting "$100k ARR" and "$8,333 MRR" conveys the same underlying revenue.
Common misreporting mistakes
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Mixing one-time and recurring revenue: ARR/MRR should only include contractually recurring revenue. One-time setup fees, professional services, and hardware are excluded.
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Inflating with full-contract value: a 3-year contract for $120k paid upfront is $40k ARR (the annual portion), not $120k ARR.
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Counting trials or freemium users: ARR/MRR is for paying customers only.
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Not netting downgrades and churn: net ARR = new ARR + expansion − churn − contraction. Gross ARR only counts new bookings.
ARR milestones investors care about
$1M ARR: the first significant proof-of-concept $3M ARR: transition from founder-led sales to first AEs $10M ARR: Series B territory, repeatable sales motion $30M+ ARR: growth equity / late stage
Use the ARR/MRR converter to convert between the two metrics instantly.