MRR & ARR.
aka monthly recurring revenue, annual recurring revenue, subscription revenue
The money that shows up again next month, without having to sell it twice.
What it actually means
MRR, or monthly recurring revenue, is the predictable income a business expects to earn every month from active subscriptions or contracts. ARR, or annual recurring revenue, is the same idea on a yearly scale, often calculated as MRR times twelve. Both leave out one-time fees, setup charges and other revenue that will not repeat.
These numbers matter most in subscription businesses, like software companies, streaming services or membership clubs. If 200 customers each pay 50 dollars a month, MRR is 10,000 dollars and ARR is 120,000 dollars. Teams track how MRR changes: new MRR from new customers, expansion MRR from upgrades, and churned MRR from people who cancel or downgrade. Investors like recurring revenue because it is easier to predict than sales that have to be won again every time.
The nuance people miss is that ARR is sometimes used loosely. Some founders take one unusually strong month and multiply it by twelve, then call it ARR. That is really an annualized run rate, and it can mislead if the month included a seasonal spike, a launch promotion or one big deal that will not repeat. Real ARR should come from contracted, repeating revenue. When you hear an ARR figure, it is fair to ask how it was calculated.
Where you'll hear it
We added 8,000 in new MRR this quarter, but churn took back 3,000, so net new MRR is 5,000. That's the number I want on the slide.
Translation: new sales look good, but some customers left. He wants the honest figure that includes the losses, not just the wins.
Also in investor updates, where startups report ARR growth month over month; in pricing discussions, where moving customers from monthly to annual plans is debated; and in sales team targets, where reps are sometimes paid on new ARR they bring in rather than on one-time deals.
The pop-culture version
Picture an online creator with two income streams. Fans can subscribe for 5 dollars a month to get bonus videos. The creator also sells hoodies a few times a year. Both bring in money, but they behave very differently.
If 1,000 fans subscribe, that is 5,000 dollars arriving every month, as long as they stay. That is MRR. The hoodie drop might bring in 20,000 dollars in one weekend, then nothing until the next drop. Great money, but not recurring, so it does not count.
Now imagine the creator has a huge merch month and says they are on track for a 300,000 dollar year. That is the run rate trap. The subscriptions are the reliable base. The merch is a bonus. Mixing them makes the business look steadier than it is.
The practical rule: count only what repeats. If revenue needs to be sold again from scratch next time, keep it out of MRR and ARR, and question any ARR figure built from one great month.
Say it like you mean it
“Our ARR is based on signed annual contracts only, so the one-off implementation fees are reported separately.”
It shows exactly what is included and keeps one-time money out, which is how the metric is meant to work.“We closed a huge one-off deal in March, so our ARR basically doubled.”
A deal that will not repeat is not recurring revenue, so counting it in ARR overstates how stable the business is.You will also hear net revenue retention, which compares this year's recurring revenue from existing customers with last year's. Above 100% means upgrades are outweighing cancellations, which is a strong sign the product keeps earning its place.
An explainer on recurring revenue models, covering how subscriptions and contracts create predictable income and support sustainable, long-term business growth.
Decoded next
Decoded by the Kurums editorial team. Kurums Decoded translates the language of business for people who are new to it. Definitions are kept short on purpose; the serious version above goes deep. Nothing here is financial, legal or career advice.
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