What is ARR/MRR?
Annual Recurring Revenue (ARR) and Monthly Recurring Revenue (MRR) measure the predictable, recurring revenue from subscriptions.
Definition
MRR is the total predictable revenue normalized to a monthly figure. ARR is MRR multiplied by 12. These metrics exclude one-time fees, professional services, and usage overages. There are several flavors: New MRR (from new customers), Expansion MRR (upsells and add-ons), Contraction MRR (downgrades), and Churned MRR (cancellations). Net New MRR combines all four. Investors and boards care about Net Revenue Retention (NRR), which is the percentage of ARR retained from existing customers including expansion and contraction.
Why It Matters
ARR and MRR are the heartbeat metrics of any subscription business. They tell you whether your revenue engine is accelerating or stalling. A company growing ARR at 50% year-over-year with 120% NRR is in fundamentally different shape than one growing at 50% with 80% NRR. The first is expanding within its base; the second is churning and replacing.
Example
A company starts January with $1M MRR. During the month, they add $80K New MRR, $30K Expansion MRR, lose $15K to Contraction MRR, and $25K to Churned MRR. Their Net New MRR is $70K, ending January at $1.07M MRR ($12.84M ARR).