ARR vs MRR: the difference, the conversion and which to report
What is the difference between ARR and MRR?
MRR is the recurring subscription revenue a company earns in a month; ARR is the same revenue expressed per year, usually MRR × 12. $80,000 of MRR is $960,000 of ARR. Use MRR for monthly plans and ARR for annual contracts, and never annualize one-time fees or a single good week.
Key facts
- Stripe: "ARR measures revenue for a full year, while MRR measures a month's worth of revenue." (Stripe)
- The usual conversion is "ARR = (monthly recurring revenue) x 12", and Jason Lemkin's rule is "ARR always = 12x MRR". (Stripe, 2024)
- ChartMogul: "ARR stands for either Annualized Run Rate or Annual Recurring Revenue." The two are not the same thing. (ChartMogul)
- Y Combinator's Garry Tan, 2026: "Annual Revenue Run Rate is never abbreviated to ARR". (Artificial Lawyer, Apr 2026)
- Shopify, a monthly-plan business, reports MRR, which was $221 million at 30 June 2026, up 19% in a year. (Shopify, 10-Q)
ARR and MRR calculator
Enter this month's recurring subscription revenue (MRR) and any one-time revenue, such as setup or services fees. ARR counts only the recurring part; the run-rate line shows what annualizing everything would claim.
Want ARR and MRR from real numbers? CX Cash is being built to track MRR, its movements and ARR from your billing data.
How to convert MRR to ARR
ARR = MRR × 12, and MRR = ARR ÷ 12
In words: multiply this month's recurring subscription revenue by 12 for ARR, or divide ARR by 12 for MRR. Annual contracts count at one twelfth of their value each month.
- MRR: Recurring subscription revenue for the month, with annual or multi-year plans counted at their monthly equivalent. One-time fees stay out.
- ARR: The annual equivalent of MRR. Some define it more strictly, counting only contracts of a year or more.
- Run-rate revenue: Any period's total revenue extrapolated to a year. Not ARR, because it can include one-time and usage revenue.
Worked example
An illustrative company with $80,000 of recurring subscription revenue this month, $15,000 of one-time setup fees, and $600,000 of ARR a year ago. The results below are computed by the calculator's tested code.
| Input | Value |
|---|---|
| MRR | $80,000 |
| One-time revenue this month | $15,000 |
| ARR 12 months ago | $600,000 |
ARR: 960,000 MRR: 80,000ARR growth over 12 months: 60.0%Revenue run-rate, one-time included: 1,140,000How much the run-rate overstates ARR: 18.8%
ARR = 80,000 × 12 = 960,000
ARR of $960,000, up 60% in a year. Annualizing the whole month, setup fees included, would claim $1.14M, 18.8% more than ARR. That run-rate is the figure YC says must never be called ARR.
In a spreadsheet
- ARR from MRR in B2: =B2*12
- MRR from ARR in C2: =C2/12
- Monthly value of an annual contract worth D2: =D2/12
- How much a run-rate overstates ARR, with one-time revenue for the month in E2 and MRR in B2: =E2/B2
How founders and investors read ARR and MRR
If you're the founder
- Lead with the measure your contracts support. Skok: "use MRR if you are the first kind of business, or ARR if you are the second kind of business", meaning monthly plans against annual contracts.
- Keep the two consistent. Lemkin: "ARR always = 12x MRR Always." If your ARR and MRR don't reconcile, investors will ask why.
- Early on, a simple version is acceptable. Lemkin's fallback: "Worst case, just take your GAAP revenue for the month, and call it MRR." a16z disagrees (see below).
Questions you'll be asked
- Is that ARR from contracts or a run-rate?
- Does MRR include usage, services or one-time fees?
- How do annual and multi-year plans enter MRR?
- Does ARR reconcile to revenue in the accounts?
If you're the investor or LP
- Ask which ARR. a16z: "It's a mistake to multiply the recognized bookings -- and in some cases revenue -- in a given month by 12 (thus "annualizing it") and call that number ARR."
- Watch for run-rate dressed as ARR. TechCrunch, 2026: "Sometimes founders use another measurement with the same "ARR" acronym and a similar name: annualized run-rate revenue."
- Check the MRR bridge. ARR is only as good as the monthly new, expansion, contraction and churn figures behind it.
Questions to ask the company
- How is ARR defined, in writing?
- What share of ARR is usage-based or contracted?
- Can we see ARR reconciled to GAAP revenue?
- Has the definition changed in the last two years?
ARR or MRR: which should you report?
Report MRR if most customers pay month to month, and ARR if most sign annual or multi-year contracts; many companies track both. Whatever you report, ARR should equal MRR × 12 and exclude one-time revenue. Call anything else a run-rate.
Benchmarks
| Segment | Measure | Typical | Top quartile | As of | Sample | Source |
|---|---|---|---|---|---|---|
| Reporting conventions | ||||||
| Monthly vs annual contracts (Skok) | Which to lead with | MRR for monthly plans; ARR for annual contracts | — | Jan 2013 | VC rule of thumb | Skok, 2013 |
| SaaS companies (Lemkin) | Identity | ARR always equals 12 × MRR | — | Dec 2022 | Practitioner rule of thumb | Lemkin, 2022 |
| Startups (a16z) | What ARR is not | A month's bookings or recognized revenue × 12 | — | Sep 2015 | VC rule of thumb | a16z, 2015 |
| Startups (Y Combinator) | Labelling | Run-rate is never abbreviated to ARR; ARR and MRR only for contracted recurring revenue | — | Apr 2026 | Accelerator guidance | Artificial Lawyer, Apr 2026 |
| Public examples | ||||||
| Shopify (monthly plans) | MRR | $221M (+19% in a year) | — | 30 Jun 2026 | Company 10-Q | Shopify, 10-Q |
Shopify explains why it uses MRR: "MRR allows us to average our various pricing plans and billing periods into a single, consistent number that we can track over time."
Zoom uses both: "Zoom calculates ARR by taking the monthly recurring revenue ("MRR") and multiplying it by 12."
Compiled Oct 2, 2026. Next review: March 2027, with the next annual reports. Left out: Garry Tan's original post on X (Couldn't be read without an account; we quote Artificial Lawyer's reproduction). Download these benchmarks as CSV.
ARR and MRR in the wild: four public companies
How four companies define the measure they report, from their latest filings. (Zoom, 2026)
| Company | Reports | How it's calculated | Source |
|---|---|---|---|
| Shopify | MRR | "the aggregate value of all subscription plans, excluding variable platform fees, in effect on the last day of the period" | 10-Q, Q2 2026 |
| Zoom | ARR (for net dollar expansion) | MRR × 12 | 8-K, Aug 2026 |
| Datadog | ARR | MRR × 12, with MRR including "additional usage" | 10-K, Feb 2026 |
| GitLab | ARR | MRR × 12 from committed subscriptions only | 10-K, Mar 2026 |
Three of the four start from MRR × 12, yet they mean different things: Datadog counts usage above commitments, GitLab only what's committed, and Shopify leaves out variable fees altogether. The label is the same; the number isn't comparable.
These are the companies' own definitions, as filed. SEC filings were read from archived copies because sec.gov blocks automated access; the links go to EDGAR.
ARR vs MRR, run-rate revenue, GAAP revenue and RPO
| Metric | Answers | Ignores | Use it when | It misleads when |
|---|---|---|---|---|
| MRR | Recurring subscription revenue this month | One-time and services revenue | Customers pay month to month | Annual plans are booked in full in one month |
| ARR | The annual value of recurring subscriptions today | Contract length and one-time revenue | Customers sign annual or multi-year contracts | Usage or one-time revenue is annualized into it |
| Run-rate revenue | Any period's revenue extrapolated to a year | Whether the revenue will recur | A rough sense of scale, clearly labelled | Called ARR |
| GAAP revenue | Revenue earned in the period, audited | Momentum within the period | Financial statements and valuation on trailing revenue | Compared with forward-looking ARR |
| RPO | Contracted revenue not yet recognized | Renewals not yet signed | Judging locked-in future revenue | Contracts are long-dated |
ARR = MRR × 12. Net new ARR in a month = net new MRR × 12, so adding $10,000 of MRR adds $120,000 of ARR (our arithmetic).
Common mistakes: how ARR gets inflated
- Annualizing one-time revenue. Setup fees, services and hardware don't recur. Twelve times a month that includes them overstates ARR.
- Calling a run-rate ARR. TechCrunch: run-rate "extrapolates current revenue over the next 12 months based on a given period's haul (e.g., a quarter, month, week, or even a day)." Label it as run-rate.
- Booking annual plans into one month's MRR. A $12,000 annual plan adds $1,000 of MRR, not $12,000, in the month it's signed.
- Counting usage without saying so. Usage can swing month to month. Datadog includes it in ARR; GitLab doesn't. Disclose which you do.
- Letting ARR and MRR drift apart. If ARR isn't 12 × MRR, one of them is defined differently. Pick one definition and derive the other.
- Comparing ARR across companies blindly. With no GAAP definition, one company's ARR includes what another's excludes. Read the definition first.
How the ARR and MRR conventions formed
| When | What happened | Source |
|---|---|---|
| May 2026 | TechCrunch reports AI startups using "ARR" for annualized run-rate revenue to look larger. | TechCrunch, May 2026 |
| Apr 2026 | Y Combinator tells founders that run-rate "is never abbreviated to ARR". | Artificial Lawyer, Apr 2026 |
| Dec 2022 | Jason Lemkin: "ARR always = 12x MRR Always." | Lemkin, 2022 |
| Sep 2015 | a16z warns that multiplying a month's bookings or recognized revenue by 12 and calling it ARR is "a mistake". | a16z, 2015 |
| Jan 2013 | David Skok advises MRR for monthly-contract businesses and ARR for annual ones. | Skok, 2013 |
How it's regarded today
- MRR × 12 is the default. Billing tools and most public filers derive ARR from MRR. Stripe: "ARR = (monthly recurring revenue) x 12".
- A fight over the acronym. YC and TechCrunch in 2026 both pushed back on run-rate figures presented as ARR, especially at AI startups.
- Definitions matter more than the label. ChartMogul's page title says it all: "ARR: Annual Recurring Revenue vs Annualized Run Rate" (ChartMogul).
- SaaS Metrics 2.0 - A Guide to Measuring and Improving what Matters (Skok, 2013). When to lead with MRR and when with ARR, depending on contract terms.
- 16 More Startup Metrics (a16z, 2015). Why ARR isn't an annualized month of bookings or revenue.
- ARR: Annual Recurring Revenue vs Annualized Run Rate (ChartMogul). The two meanings of ARR, and the strict, contract-based definition.
What experts say about ARR and MRR
“Note: Annual Revenue Run Rate is never abbreviated to ARR, per next point.”
“Worst case, just take your GAAP revenue for the month, and call it MRR. Then multiply it by twelve and call that ARR. That's fine enough for now.”
“It's a mistake to multiply the recognized bookings -- and in some cases revenue -- in a given month by 12 (thus "annualizing it") and call that number ARR.”
“This means use MRR if you are the first kind of business, or ARR if you are the second kind of business.”
ARR vs MRR FAQ
What is the difference between ARR and MRR?
Time frame. MRR is recurring revenue per month, ARR per year. For most companies ARR = MRR × 12.
How do you convert MRR to ARR?
Multiply by 12. $80,000 of MRR is $960,000 of ARR. To go the other way, divide ARR by 12.
Should a startup report ARR or MRR?
MRR if most customers pay monthly, ARR if most sign annual contracts. Many companies report both, consistently.
Is ARR the same as annualized run-rate?
No. ARR counts recurring subscription revenue; run-rate extrapolates any period's total revenue, which can include one-time and usage revenue. YC says run-rate is never abbreviated ARR.
How do annual plans count in MRR?
At one twelfth of their annual value each month. A $12,000 annual plan is $1,000 of MRR.
Does ARR include usage-based revenue?
It depends on the company. Datadog includes usage; GitLab counts only committed subscriptions. State your definition.
Is ARR a GAAP metric?
No. Neither ARR nor MRR has a GAAP definition, so companies define their own and should disclose how.
Related metrics and guides
Sources
Every link was opened and checked. Archived copies guard against links that move or disappear.
Primary data
- Shopify Inc. Form 10-Q for the quarter ended June 30, 2026. Shopify (SEC filing), 5 Aug 2026. Read from the archived copy; sec.gov blocks automated access. Archived copy
- Zoom Communications Reports Financial Results for the Second Quarter of Fiscal Year 2027. Zoom (8-K exhibit 99.1), 25 Aug 2026. Read from the archived copy; sec.gov blocks automated access. Archived copy
- Form 10-K for the fiscal year ended 31 December 2025. Datadog (SEC filing), 18 Feb 2026. Read from the archived copy. Archived copy
- Form 10-K for the fiscal year ended 31 January 2026. GitLab (SEC filing), 17 Mar 2026. Read from the archived copy. Archived copy
Practitioner
- Monthly recurring revenue (MRR) explained. Stripe (resource article), 14 Feb 2025 (updated 11 May 2026). Billing vendor's guide. Archived copy
- What is ARR? Here's how to calculate it. Stripe (resource article), 31 Jan 2024. Billing vendor's guide. Archived copy
- ARR: Annual Recurring Revenue vs Annualized Run Rate. ChartMogul (SaaS metrics library), Updated 8 Sep 2026. Analytics vendor's guide. Archived copy
- Annual Recurring Revenue (ARR). SaaS Metrics Standards Board, Undated. Industry body, not an accounting standard setter. Archived copy
- 6 Important Things Founders Get Wrong In Their Core Metrics. Jason Lemkin (SaaStr), 15 Dec 2022. Practitioner opinion. Archived copy
- 16 More Startup Metrics. Anu Hariharan, Frank Chen and Jeff Jordan (Andreessen Horowitz), 23 Sep 2015. Archived copy
- SaaS Metrics 2.0 - A Guide to Measuring and Improving what Matters. David Skok (For Entrepreneurs), 16 Jan 2013. Archived copy
News
- Y Combinator Tells Founders 'Be Truthful' On Revenue. Artificial Lawyer (reproducing Garry Tan's post on X), 27 Apr 2026. Secondary; the original post on X couldn't be read. Archived copy
- How VCs and founders use inflated 'ARR' to crown AI startups. TechCrunch (Marina Temkin), 22 May 2026. Relies partly on anonymous sources. Contested. Archived copy
Changes to this page
- · Major · Rewritten and moved here from our earlier article on MRR vs ARR. Sources checked 2 October 2026.
- · Major · First published as "Which Number Should a Board Trust in the MRR vs ARR Debate?".
Cite this page
Dominique Bouillet, "ARR vs MRR: the difference, the conversion and which to report", CX Cash, updated Oct 6, 2026, https://cxcash.com/metrics/arr-vs-mrr
CX Cash builds software for founders and investors. This page is education, not investment advice. Third-party figures link to their source, and our own arithmetic and illustrative examples are labelled as such.