What is the difference between ARR and MRR for a SaaS business in 2027?
The difference is the measurement period. MRR is a SaaS company's recurring revenue measured per month, and ARR annualizes that same recurring base. Revenue Calculators and the Corporate Finance Institute both give the conversion as ARR = MRR x 12.
Which one you report mostly follows your contracts. KPI Sense says to use ARR with annual or multi-year contracts or high annual contract values, and to stick with MRR for high volumes of month-to-month contracts. Both metrics should leave out one-time fees. Every definition below comes from a vendor or educational article, and there is no single universal formula, so we label our own reading as judgment.
The short version: same recurring base, two time frames
Maxio's guide, published October 5, 2023, puts it in one line: where MRR measures recurring revenue on a monthly basis, ARR measures on an annual basis. The Corporate Finance Institute's ARR article says the main difference between ARR and MRR is the measurement period, and defines ARR as the total predictable subscription-based revenue a company expects to earn each calendar year.
Revenue Calculators' guide, updated May 22, 2026, gives the working formula: ARR = MRR x 12. It adds a framing about use. MRR is better for operating the business month to month, and ARR is better for communicating the size of the recurring revenue base over a longer period.
What counts, and what does not
The sources agree on what to keep out. CFI says ARR excludes setup costs, consulting fees and other one-off sales since they are not recurring. Revenue Calculators lists one-time setup fees, implementation services, hardware, consulting and irregular usage spikes, and warns that including them makes retention and growth look cleaner than they really are.
Maxio breaks MRR into movements: new MRR, expansion MRR, churn MRR and contraction MRR. Its example counts 12 new subscribers at $50 each as $600 of new MRR, 20 canceled $50 subscriptions as $1,000 of churn MRR, three $20 downgrades and one $50 downgrade as $110 of contraction MRR, and four $20 upgrades plus two $30 add-ons as $140 of expansion MRR. CFI's ARR version uses the same movements on an annual base: starting ARR of $400,000, plus $100,000 new and $50,000 expansion, minus $20,000 contraction and $30,000 churn, gives $500,000, which CFI describes as 25% year-over-year growth.
A worked example with mixed billing
Revenue Calculators supplies the cleanest example of mixing plans. Annual contracts should be divided by 12 before they are compared with monthly plans. In its example, 100 customers pay $49 a month and 10 customers pay $1,200 a year, which normalizes to $100 a month each. MRR is $5,900, made of $4,900 monthly plus $1,000 annual, and ARR is $70,800.
CFI shows the simple case: 50 customers paying $100 a month for 12 months is $60,000 of ARR. We did not compute any figures of our own here; the numbers above are the ones the sources print.
When to use which
- Use ARR when contracts run a year or longer. KPI Sense says SaaS companies that offer customers contracts of at least one year typically use ARR, and that ARR suits annual or multi-year contracts and high annual contract values. Maxio goes further: ARR is used almost exclusively in B2B subscription businesses and only when the minimum subscription term is a year. CFI's example of a company that would track ARR is one with $120,000 annual contracts.
- Use MRR when customers can leave monthly. KPI Sense says to stick with MRR if your business relies on high volumes of month-to-month contracts and develops monthly forecasts, and notes that since more companies let customers subscribe month to month, ARR is not as common as MRR. Maxio says MRR is far more commonly used for most B2B SaaS subscription businesses.
- Track both if you can. Revenue Calculators frames MRR as the operating view and ARR as the communication view, which in practice means both are reported from one base. Maxio takes a looser line: it does not much matter which metric you choose, as long as you pick one and stick with it.
Mistakes the sources warn about
- Treating ARR as cash. Revenue Calculators says ARR is a run-rate view and is not the same as cash collected this year, and says to use cash flow separately when timing, annual prepayments, refunds or receivables matter.
- Counting one-time money. Setup, consulting, hardware and usage spikes inflate the recurring base, per CFI and Revenue Calculators.
- Counting discounts at the wrong price. Revenue Calculators says to use the current recurring amount unless you are explicitly modeling a future price step-up.
- Assuming one formula. CFI says there is no single universal formula for ARR. Internal reporting is often conservative, while investor figures may include signed deals that have not started billing, so ask which definition a number uses.
- Forgetting MRR is not total revenue. KPI Sense notes MRR is not necessarily your company's total revenue.
KPI Sense's churn example shows the scale effect of the annual view: five annual customers at $5,000 each leaving would reduce ARR by $25,000.
A practical reading, labeled as judgment
What follows is our synthesis, not a procedure any one source gives. If most of your customers pay monthly and can cancel monthly, run the business on MRR and annualize it only when someone asks for a yearly size. If most contracts are annual or longer, lead with ARR and keep a normalized MRR beside it so monthly movements stay visible. In either case, write down what you exclude and whether signed-but-not-billing deals are counted, so every figure can be reproduced.
What this page does not claim: it does not say which metric investors in 2027 prefer, it gives no benchmark for either metric, and it does not cover usage-based billing, which none of the sources addressed. The sources are vendor and educational articles, and the 2027 in the title is only a label for this year's guides.
Questions people ask
What is the difference between ARR and MRR?
The measurement period. CFI says the main difference between ARR and MRR is the measurement period, and Maxio says MRR measures recurring revenue monthly while ARR measures it annually.
How do you convert MRR to ARR?
Revenue Calculators and CFI both give ARR = MRR x 12. Annual contracts should be divided by 12 before they are compared with monthly plans.
Does ARR include one-time fees?
No. CFI says ARR excludes setup costs, consulting fees and other one-off sales since they are not recurring. Revenue Calculators also lists hardware and irregular usage spikes among items to keep out.
Which should a SaaS business use?
KPI Sense says to use ARR for annual or multi-year contracts or high annual contract values, and MRR for high volumes of month-to-month contracts. Maxio says MRR is far more commonly used for most B2B SaaS subscription businesses.
Is ARR the same as cash collected?
No. Revenue Calculators says ARR is a run-rate view and is not the same as cash collected this year.
Is there one standard formula for ARR?
CFI says there is no single universal formula. Internal reporting is often conservative, while investor figures may include signed deals that have not started billing.
Sources
- Maxio: An Intro to SaaS Recurring Revenue: Calculate MRR and ARR · MRR and ARR definitions, MRR movements, when each is used
- Revenue Calculators: MRR vs ARR: what SaaS teams should track · Formula, exclusions, mixed-billing example, pitfalls
- Corporate Finance Institute: Annual Recurring Revenue (ARR) · ARR definition, exclusions, roll-forward example, no universal formula
- KPI Sense: The Complete Guide to ARR and MRR for SaaS · When to use each, contract length, churn example
- Hero photo: "Hourglasses" by Aaaatu, CC BY-SA 4.0, Wikimedia Commons (cropped) · Credit for the photo at the top of this page
Facts were read from the linked pages on November 7, 2026. These are vendor and educational articles, not studies, and definitions vary by company. Sections marked as judgment are our reading, not a source claim.