Monthly recurring revenue (MRR) and annual recurring revenue (ARR) give a business a comprehensive summary of its performance. These metrics provide insight into short-term movement and long-term impact, which help guide both present and future decisions.

Below, we'll explore the basics of recurring revenue, how MRR and ARR differ, and when each metric is most useful for understanding business performance and growth.

What's in this article?

• What is recurring revenue?
  
• What's the difference between MRR and ARR?
  
• When is MRR more useful than ARR for tracking performance?
  
• When does ARR give a better picture of business scale and growth?
  
• Why do SaaS companies track both MRR and ARR?
  
• What does a $100 million ARR business actually mean in practice?
  

What is recurring revenue?

Recurring revenue measures the predictable revenue your business generates from customers who pay you on a recurring basis. Instead of selling something once, you charge customers regularly. This pricing model is common in software-as-a-service (SaaS), consulting, and memberships.

What's the difference between MRR and ARR?

MRR is the predictable revenue your business generates every month from customers who pay you on a recurring basis. It includes subscription fees and other monthly charges. ARR represents that same recurring revenue your business would generate over 12 months, assuming your current customers, pricing and contracts stayed the same. It's the total annualised value of all active recurring contracts. Both metrics count only predictable, repeatable revenue.

While MRR and ARR describe the same underlying revenue, they answer different questions. MRR is sensitive to recent changes and reveals momentum quickly, including the impact of new sales, upgrades, cancellations or pricing changes as they happen. ARR filters out month-to-month variation to show how stable and durable the revenue base is. It's more useful for planning, budgeting, and evaluating the business strategically.

MRR and ARR can be broken into the following:

• New MRR/ARR: Revenue from new customers

• Expansion MRR/ARR: Upgrades, seat growth, or add-ons from existing customers

• Churn MRR/ARR: Revenue lost when customers cancel their subscriptions

• Contraction MRR/ARR: Revenue lost from downgrades

• Net new MRR/ARR: Total of each MRR/ARR component compiled into a single growth figure

When is MRR more useful than ARR for tracking performance?

MRR shows how the business is behaving at any given moment and how recent decisions are affecting revenue. MRR is especially valuable when the business is still finding its product-market fit and growing quickly. It reflects cash inflows and reveals the impact of pricing changes, product launches, sales experiments, or marketing campaigns almost immediately. Customer cancellations, downgrades and expansions are also visible in MRR.

MRR's short feedback loop makes it easier for a company to adjust before small problems compound. Businesses that charge customers monthly benefit from tracking revenue on the same cadence.

When does ARR give a better picture of business scale and growth?

ARR becomes more useful as the business matures and decisions stretch beyond the next few months. It provides a stable baseline for long-term planning (e.g. annual budgets, hiring plans, multiyear growth targets). Businesses that sell longer-term subscriptions benefit from ARR because it reflects how customers commit. It also helps identify procurement cycles and contract values.

ARR offers a clear, comparable summary of scale that external stakeholders expect. It translates recurring revenue into a single number that signals maturity and traction. Changes in ARR reveal whether growth is compounding year over year.

Why do SaaS companies track both MRR and ARR?

SaaS companies use MRR and ARR together to spot gaps. Teams that run experiments and manage customers need MRR to understand immediate impacts, while leadership relies on ARR to plan, forecast and set durable growth targets.

MRR can show churn or slowdown before it materially affects annual performance. ARR shows whether those issues are isolated or starting to reshape the business. MRR also supports internal accountability and performance tracking, while ARR provides a shared language for investors, boards and external audiences.

As companies grow, emphasis naturally shifts towards ARR but MRR's signals are still important. Tracking both allows businesses to maintain visibility into how revenue is changing.

What does a $100 million ARR business actually mean in practice?

A $100 million ARR business generates roughly $8.33 million in recurring revenue each month. At this level, a one-point change in growth or churn can move millions of dollars annually. That level of ARR typically reflects a large base of customers who consistently renew and pay. It's a strong indicator that the product delivers sustained value instead of satisfying one-time demand.

Managing revenue at this scale requires mature systems across billing, forecasting, customer success and infrastructure. Retention becomes as important as acquisition because losses compound quickly. Companies at this stage can begin to realistically consider outcomes such as initial public offerings (IPOs), large acquisitions and global expansion. ARR provides the confidence that the underlying business can support those moves.

Stripe Sigma makes it easier for businesses to gain insight, track trends, and analyse patterns in their data down to the transaction level.

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