Glossary · Metrics · Updated 28 August 2026
MRR (Monthly Recurring Revenue) is a subscription business's recurring monthly revenue; ARR (Annual Recurring Revenue) is its annual projection, twelve times MRR. Only contractual, repeatable revenue counts: one-off services are excluded.
These metrics do not measure accounting revenue but the revenue base secured at a point in time. A company billing €20K of MRR has €240K of ARR, even though its actual annual revenue will be lower because the base grew during the year.
The headline number interests investors far less than its composition. MRR moving from €20K to €22.5K can hide two opposite realities: healthy acquisition with few departures, or frantic acquisition papering over churn. Breaking it into new, expansion, contraction and churn reveals which.
Net revenue retention compresses that reading into one figure: what an existing cohort's revenue becomes with no new customers at all. Above 100%, the base grows on its own through expansion, which is a strong signal. Below 90%, most acquisition spend is just patching holes.
Example: one month of MRR, broken down
A B2B SaaS startup starts the period with 40 customers at €500 per month.
| MRR at start of month | 40 × €500 = €20,000 |
|---|---|
| Corresponding ARR | €20,000 × 12 = €240,000 |
| New MRR (new customers) | +€3,000 |
| Expansion MRR (upgrades) | +€1,000 |
| Churned MRR (departures) | −€1,500 |
| MRR at end of month | €22,500 |
| Net growth | +12.5% |
| Net revenue retention | (€20,000 + €1,000 − €1,500) / €20,000 = 97.5% |
The 12.5% growth is solid, but 97.5% NRR says the existing base is slowly eroding. With no new customers this company would lose 2.5% of revenue per month — a point an investor will raise before the first meeting is over.
The common mistake
Folding non-recurring revenue into ARR: setup fees, integration services, contracts with no renewal commitment. It is the most common diligence adjustment, and it typically cuts reported ARR by 15% to 30%.
Frequently asked questions
How is ARR calculated?+
ARR = MRR × 12. It projects the current recurring revenue base over twelve months; it is not revenue actually booked. Only contractual, repeatable revenue belongs in it.
What ARR growth is expected at seed?+
Investors weigh trajectory far more than absolute level. A modest ARR tripling over twelve months with good retention reads better than a larger but flat ARR, because the first curve extrapolates and the second does not.
Related terms
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