MRR vs ARR: what they mean, with a worked example

MRR, or monthly recurring revenue, is the predictable revenue your subscriptions bring in each month, measured on a given day. ARR, annual recurring revenue, is the same snapshot stretched to a year: usually MRR times 12. Got forty physiotherapy studios paying you €100 a month? Then you’re at €4,000 of MRR, or €48,000 of ARR.

You don’t have to pick a side in MRR vs ARR. It’s one number, read by the month or by the year, and built with the same rules. The harder part is what goes into it, and why your Italian bilancio never shows the same figure. Just starting out? Begin with our map from zero to a first round.

What counts in MRR, and what doesn’t

Here’s the test. MRR is the money that would land next month if nothing changed: nobody new signs, nobody leaves. Apply it and most borderline cases settle themselves.

Paid subscriptions count, at the price the customer really pays: a €100 plan sold at €80 for good is €80. ChartMogul, a subscription analytics company, argues that MRR ‘should be representative of what customers are paying’. Annual plans count divided by twelve. Stripe’s own example is a $1,200 annual subscription, which adds $100 to MRR.

Setup fees don’t count, and neither do implementation projects or training days. They’re real revenue, but they won’t come back next month; a16z’s metrics guide says ARR ‘should exclude one-time (non-recurring) fees and professional service fees’. Free trials and VAT stay out too. Usage-based charges are the grey zone, and Stripe’s own MRR calculation leaves metered billing out altogether. Include usage only as a cautious average, and label it.

How does MRR move? An example in euro

End-of-month MRR is last month’s figure plus or minus five movements. New MRR comes from first-time customers. Expansion is an existing customer paying more: an upgrade, extra seats, an add-on. Contraction is a customer who stays but pays less, while churned MRR is one who cancels everything. Reactivation, a lost customer coming back, completes the set.

Net new MRR = new + expansion + reactivation − contraction − churned MRR.

Say you sell booking software to physiotherapy studios in Emilia-Romagna: €100 a month for the base plan, €150 for Plus, or €1,080 a year paid upfront. On 31 March your MRR is €10,000.

Month	New	Expansion	Contraction	Churned	Net new MRR	MRR at month end
April	€1,500	€300	−€100	−€400	+€1,300	€11,300
May	€1,200	€200	−€200	−€300	+€900	€12,200
June	€2,000	€400	€0	−€600	+€1,800	€14,000
July	€1,000	€100	−€100	−€500	+€500	€14,500
August	€600	€100	−€100	−€700	−€100	€14,400
September	€2,200	€500	−€200	−€400	+€2,100	€16,500

September closes at €16,500 of MRR, so ARR is €198,000. Growth averaged about 8.7% a month on a16z’s compound monthly growth formula: 16,500 divided by 10,000, raised to the power of 1/6, minus 1. Then look at August. Seven studios on the base plan cancelled over the summer and net new MRR went negative, a dip a quarterly total would have buried.

June hides a trap. A clinic chain took the annual plan for ten practices and paid €10,800 upfront, plus a €2,500 setup fee and €1,200 for staff training. Only €900 of all that is new MRR (€10,800 ÷ 12), next to eleven single studios at €100. The rest is welcome cash. None of it recurs.

Why split it this finely? Two companies can each add €1,000 of MRR in a month. One signed €1,200 and lost €200. The other signed €4,000 and lost €3,000, and is in trouble. Expansion deserves its own column too. SaaS Capital surveyed over 1,000 private B2B SaaS companies in 2025. At the median, churn and downgrades took about 9% of a year’s starting revenue (a gross revenue retention of 91%). Selling more to the same customers put back about 10 points, so net retention ended at 101%.

MRR vs ARR, and why neither is the revenue in your accounts

Which one goes on the slide? Early on, with most customers paying month to month, MRR. It’s the number that moves, and at that stage investors want to see movement. Later, once most of your book is annual contracts, ARR. CRV, a US venture firm, notes that ‘annual and multi-year contracts usually carry more weight than month-to-month plans’. And because software companies are valued as multiples of ARR, investors police what goes into it (our guide to SaaS valuation multiples in 2026 has the ranges).

In Italy the gap shows when you file the bilancio. Revenue follows the accrual principle: income counts in the year it belongs to, ‘indipendentemente dalla data dell’incasso’ (Article 2423-bis of the Civil Code). Take the chain’s €10,800. Only June to December counts as 2026 revenue, seven twelfths or €6,300. The other €4,500 waits in risconti passivi, deferred income, until 2027 (Article 2424-bis). The setup fee and the training land in line A1 of the income statement, ‘ricavi delle vendite e delle prestazioni’, and never in MRR.

One contract, three numbers, and all three are right: €10,800 in the bank in June, €900 of MRR from June, €6,300 of 2026 revenue.

Listed companies draw the same line. MotorK, an Amsterdam-listed software provider for car dealers, with Italy as its largest market, defines ARR as ‘the yearly subscription value of the customer base at the end of the reporting period’: €30.2 million at 30 June 2026. Its recurring revenue for the half year was €14 million, about 76% of the €18.5 million total. A separate figure, CARR, adds signed contracts not yet delivered and billed.

Aiming for the scale-up extension of Italy’s innovative startup status? The law reads revenue growth in line A1, not ARR. Our page on what a scale-up is under Italian rules has the thresholds.

Mistakes investors spot on an MRR slide

1. Multiplying your best month’s invoices by 12. a16z names this exact error: ‘one month’s all-in bookings’ times 12 is not ARR.
2. Folding a setup fee or a monthly consulting retainer into MRR.
3. Counting a signed contract before it goes live. Show it apart, as MotorK does with CARR.
4. Quoting list prices before discounts, or counting free trials.
5. Showing net growth only. Put new, expansion and churned MRR side by side, since your pricing model moves all three.

Due diligence often includes a dull but telling exercise: an analyst rebuilds your MRR from the billing export. Their number should land on yours. Our financial model service builds the model with you, one you can defend in an investor or lender meeting.

Related terms

• Raising a seed round for SaaS? Then MRR growth is probably your most convincing proof of startup traction.
• If MRR already covers your costs, raising becomes a choice, which is the whole idea behind bootstrapping a startup.
• Churn rate turns churned MRR into a percentage. 2026 benchmarks included.
• MRR never travels alone. Our guide to startup metrics for pre-seed and seed puts it next to retention and runway.
• For the two-line version, see MRR and ARR in our startup glossary, which lists 49 other terms.

This page is general information, not accounting, legal or tax advice. Rules change: check the official source or ask a professional before you act.