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MRR to ARR (And Back): How to Avoid Confusion

How to use MRR/ARR correctly when you have annual plans, usage overages, and discounts.

Quick checklist

  • Normalize annual contracts to monthly MRR (ACV / 12).
  • Keep usage revenue separate if it is volatile.
  • Report run-rate ARR, not booked revenue.
  • Document discount treatment in your MRR definition.
  • Use one definition across finance and product.

Step-by-step

  1. Convert annual contracts to MRR using ACV / 12.
  2. Add monthly subscriptions to get total MRR.
  3. Multiply MRR by 12 to report ARR.
  4. Exclude one-time fees and non-recurring services.
  5. Validate ARR against finance reporting.

Example scenarios

  • Annual prepay: 120k annual contract becomes 10k MRR and 120k ARR.
  • Usage overages: use a trailing average for MRR if usage is spiky.
  • Discounted contracts: use net revenue, not list price.

Common mistakes

  • Counting booked revenue as ARR.
  • Mixing gross and net MRR definitions.
  • Including one-time setup fees in MRR.

Tools to use