MRR, ARR, and revenue are three different numbers that careless reporting treats as one, and the differences decide valuations. Monthly recurring revenue is the normalized monthly value of active subscriptions. Annual recurring revenue scales that run-rate to a year. Revenue, without qualification, is the accounting figure actually recognized in a period, which includes one-time income and is governed by recognition rules. A company quoting "ARR" that is really last quarter's revenue times four is inflating its story, and this page exists so you can spot it, including in your own reports.
The definitions that hold up
MRR counts only recurring subscription value, normalized to a month: annual contracts contribute one twelfth of their contract value, monthly plans their monthly price, and trials, one-time fees, services, and hardware contribute nothing. ARR is that snapshot expressed at an annual rate; some companies instead define ARR as the sum of contracted annual values, which is near-identical for stable bases but differs when mid-year starts dominate. Revenue is what the income statement recognized in a past period under accounting rules: it includes the one-time items MRR excludes and recognizes prepaid annual cash across the year rather than up front.
A worked contrast
A SaaS company has 500 customers on 12,000 annual plans. MRR is 500 x 100 + 40 x 1,000 = 1,080,000. In a month where it also closes a 330,000 (three months of recognized subscription revenue of 60,000 one-time project, with the prepayments recognized monthly, not on receipt). Cash collected that quarter would be higher still. Three numbers, three truths: the run-rate (ARR), the recognized past (revenue), and the bank (cash). Mixing them is how a 1.4M-revenue business in a pitch, and how a board gets surprised by a "revenue miss" that was really the absence of last quarter's one-off project.
Which number for which decision
Use MRR and its components (new, expansion, contraction, churned) to operate: pricing tests, churn work, and sales capacity all read off the monthly run-rate. Use ARR for market sizing, valuation conversations, and comparing subscription businesses, because the industry prices recurring companies as multiples of ARR. Use recognized revenue for anything financial and external: accounts, tax, covenants, and audited reporting. Use neither MRR nor ARR as a synonym for cash: annual prepayments make cash better than MRR in collection months and worse in delivery months, and confusing run-rate with liquidity is a genuine way companies die profitable on paper.
The standard corruptions
Counting one-time fees in MRR; annualizing a seasonally peak month (December MRR times twelve invents an ARR the business will never see); including signed-but-not-started contracts as current ARR without labeling them committed; treating gross bookings as revenue; and switching definitions between reports so growth appears where none occurred. The audit question that dissolves most of them is simply: show me MRR's five components for the last six months under one frozen definition. Honest operators can; story-tellers change the subject.
Growth rates belong to the run-rate
Churn, expansion, and net revenue retention are all defined on MRR movements, which is why ARR growth can look smooth while the underlying MRR quality rots: a base adding heavy new MRR while churning its core can grow ARR for quarters before the arithmetic turns. Read ARR for scale, MRR components for health, and revenue for truth about the past; the trio together is the complete picture, and any single one quoted alone deserves a follow-up question.
Limitations
Definitions vary at the edges: usage-based businesses often report a trailing-thirty-day recurring figure instead of contracted MRR, marketplaces may quote annualized gross merchandise value run-rates (not revenue at all), and some firms define ARR from contracted values only. The formulas here are the mainstream conventions; when comparing two companies, align their definitions before comparing their numbers.
Frequently Asked Questions
Is ARR always just MRR times 12?
In the standard run-rate definition, yes. Companies using contracted-ARR definitions will differ slightly when contracts start mid-period. Either is defensible if disclosed; switching between them silently is not.
Can ARR be higher than annual revenue?
Commonly, yes: a growing company's current run-rate exceeds what it recognized over the past twelve months, and ARR excludes nothing recurring while revenue includes one-time items in the other direction. The two converge only in a perfectly steady business with no one-time income.
Which figure do investors value the company on?
For subscription businesses, primarily ARR and its growth and retention quality, cross-checked against recognized revenue in diligence. A gap between pitched ARR and what the accounts support is one of the fastest ways to lose a deal.