Knowledge · B2B Sales

ARR · MRR

Annual/Monthly Recurring Revenue

📂B2B Sales⏱2 min read📊Practical🔗5 related

What is ARR?

In one line
Metrics for recurring revenue from subscriptions and contracts. MRR is Monthly Recurring Revenue; ARR is Annual Recurring Revenue (MRR × 12). They are core measures of growth and predictability for SaaS and subscription-based B2B businesses.
⚡ Summary in 3 lines
  • A metric that measures recurring revenue
  • MRR = monthly, ARR = annual (MRR×12)
  • Diagnose growth by new, expansion, and churn

Once you start using ARR and MRR, the questions asked in sales meetings change. Instead of “How much did we win this quarter?”, you ask “When this month ends, how much revenue is still alive next month?” Because you count the amount that is alive right now, cut into monthly pieces, rather than the total printed on the contract, a single cancellation shows up immediately as a hole in that month’s numbers. So sales performance is judged not by new bookings alone but by net new MRR (new + expansion − downgrade − churn), and CS and customer success teams, who used to work apart from revenue metrics, come onto the same scoreboard.

Most disputes in practice come down to 'what counts as recurring.' Three-year total contract value (TCV) is not ARR, and MRR is annual contract value (ACV) divided by 12. Initial setup fees, customization fees, in-person training fees, and one-off overage charges should be excluded or at least listed in a separate column. A customer who prepays KRW 12 million (≈ US$8,980) for a year is not booked as KRW 12 million (≈ US$8,980) in the month of payment; it is spread over 12 months as MRR of KRW 1 million (≈ US$750). Also, ARR is not accounting revenue but an annualized run rate at a point in time. It is perfectly normal for ARR of KRW 6 billion (≈ US$4,489,000) to show income-statement revenue of KRW 4.5 billion (≈ US$3,366,800). Look separately at GRR, which reflects only churn and downgrades, and NRR, which includes expansion, and you can see whether growth comes from existing customers or new sales are just plugging the holes.

The most common mistake is blurring the boundaries to make the numbers look good. If you book customers who came in on 6 free months or a 50% discount at list price in MRR, mass churn hits all at once in the month the discount ends, and the metric drops off a cliff. It is not unusual to mix a KRW 300 million (≈ US$224,500) implementation fee into ARR when presenting to investors, only to strip it out during due diligence. In Korean B2B, contracts are large and customers few, so it is common for the top 3 clients to account for 30–40% of MRR. If you watch only average ARR growth, one large client failing to renew can wipe out the whole quarter, so always look at customer concentration and renewal dates together.

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💡 In plain English
Think of rent that arrives by automatic transfer each month: steady monthly income says more about a business’s strength than any single big deal.
Why it matters in practice
Because in a subscription economy, where the goal is revenue that keeps coming in rather than a one-time sale, it is the metric that most directly shows growth and company value.
MRR vs ARR
CategoryMRRARR
DurationMonthly recurring revenueAnnual recurring revenue
CalculationTotal monthly subscription feesMRR × 12
Main useMonthly changes and operational managementAnnual growth and valuation
Good fitMonthly contracts, fast-changingAnnual contracts, long-term growth trends
Origin and sources

MRR and ARR became standard management metrics in the late 2000s as the SaaS (software-as-a-service) model spread. They came into wide use to quantify the predictability of future revenue in business models that generate recurring revenue through subscriptions instead of one-time sales.

An example

Consider a hypothetical case. Company A, with 45 employees, builds industrial safety management SaaS and spent three years chasing a single target: 'KRW 7.2 billion (≈ US$5,386,800) in annual revenue.' Yet in the second half of last year, new contracts grew every quarter while the cash hitting the bank account stayed flat. When the CEO asked, 'Why is cash flat when bookings are growing?' no one had an answer.

  1. After the finance lead went through every contract from the past 12 months, converted 21 three-year total-value contracts to annual figures, and stripped out the KRW 300 million (≈ US$224,500) implementation fee and in-person training fees, ARR was KRW 4.1 (≈ US$1) billion, not the KRW 6.8 billion (≈ US$5,087,500) everyone thought.
  2. When the sales ops manager built an MRR board as of the 1st of each month and split it into four columns (new, expansion, downgrade, churn), it turned out that of the KRW 42 million (≈ US$31,400) in new MRR, KRW 31 million (≈ US$23,200) was leaking out through churn.
  3. The head of customer success called the 18 companies that had canceled. 11 of them said, “We adopted it, but our frontline supervisors don’t use it,” so an 8-week onboarding program became a mandatory condition of every contract.
  4. After sales incentives were switched from bookings to net new MRR, the sales lead said, “Then we’re better off not selling a contract that cancels in six months,” and discount deals topped up with 6 free months fell from 9 a quarter to 2.
  5. When it emerged that the top 3 clients made up 38% of total MRR, those 3 were split off into dedicated account management, with the responsible executive visiting in person every quarter starting 4 months before renewal.
  6. A year later, monthly churn fell from 2.9% to 1.1% and NRR rose from 96% to 114%, so ARR grew from KRW 4.1 billion (≈ US$3,067,500) to KRW 5.8 billion (≈ US$4,339,400) without adding a single salesperson.
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Last updated 13 Sep 2026 · Reviewed by John Kim

FAQ

By default, yes (ARR = MRR × 12). However, with annual prepaid contracts or heavy mid-month changes, you need to calculate on a consistent point-in-time basis to avoid distortion.
Revenue that will not repeat, such as setup fees or one-off consulting, cannot serve as a basis for forecasting. Looking only at recurring revenue shows the stable scale of the business.
If you have recurring contract elements such as maintenance or retainers, you can separate out that portion and manage it as MRR. It is not suitable for revenue from purely one-off projects.
No. ARR is an operating metric that annualizes recurring revenue at a point in time, while accounting revenue is revenue actually recognized for a period. They serve different purposes, so you look at both.