ARR vs MRR and Revenue Retention Calculations

Compare ARR, MRR growth, gross revenue retention, and net revenue retention to understand recurring revenue reporting measures.

Recurring revenue metrics answer different questions. ARR converts a monthly run rate into an annual view, while MRR measures the monthly run rate. Retention metrics focus on the opening customer base and exclude new customer MRR, but they differ in whether expansion is counted.

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About ARR vs MRR and Revenue Retention Calculations

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ARR versus ending MRR

Compare the annualized run rate with the monthly recurring revenue balance at the end of a reporting month.

Factor	Option A: Annual Recurring Revenue	Option B: Ending MRR	What It Means
Time frame	Annualized run rate	Monthly run rate at month end	The measures use the same ending revenue base but express it over different time frames.
Calculation	Ending MRR × 12	Starting MRR plus monthly revenue movements	ARR is derived from ending MRR in this calculator.
Best reporting use	Annual planning and high-level run-rate communication	Monthly operating review and revenue roll-forward	The appropriate view depends on the reporting question.
Sensitivity to one month of change	Monthly changes are magnified by annualization	Shows the direct monthly change	MRR makes the immediate monthly movement easier to see.
Revenue recognition measure	No, it is a run-rate estimate	No, it is a recurring revenue run rate	Neither measure automatically equals revenue recognized under accounting policies.

ARR and ending MRR are closely linked: ARR provides the annualized view, while ending MRR shows the underlying monthly run rate.

Net revenue retention versus gross revenue retention

Compare two ways of measuring revenue retained from the starting customer base.

Factor	Option A: Net Revenue Retention	Option B: Gross Revenue Retention	What It Means
Starting customer base	Included	Included	Both metrics begin with recurring revenue from existing customers at the start of the period.
Expansion MRR	Included as a positive movement	Excluded	Net retention captures upsell and expansion, while gross retention focuses on revenue preserved before expansion.
Contraction MRR	Subtracted	Subtracted	Both metrics reflect revenue lost through downgrades or reduced spend.
Churned MRR	Subtracted	Subtracted	Both metrics reflect revenue lost when customers cancel.
Can result exceed 100%	Yes	Generally no when calculated without expansion	Expansion can lift net retention above the opening revenue base.
Primary question answered	Did the opening customer base grow or shrink in revenue?	How much opening revenue remained before expansion?	Each measure provides a different view of existing-customer performance.

Net revenue retention includes expansion, whereas gross revenue retention isolates losses from the opening customer base before expansion.

Total MRR growth versus net revenue retention

Compare a whole-business growth measure with a metric limited to the opening customer base.

Factor	Option A: Total MRR Growth	Option B: Net Revenue Retention	What It Means
New MRR	Included	Excluded	Total MRR growth measures all revenue movements; net retention isolates existing customers.
Expansion MRR	Included	Included	Both measures recognize expansion from existing customers.
Contraction and churn	Subtracted	Subtracted	Both account for lost recurring revenue.
Core question	Did total recurring revenue rise or fall this month?	How did the opening customer base perform?	The measures are complementary rather than interchangeable.
Possible combination	Can be positive	Can be below 100%	New sales can grow total MRR even when the opening base contracts.

Total MRR growth includes acquisition performance. Net revenue retention removes new customers to reveal the revenue trend of the opening base.

Key Differences at a Glance

ARR is an annualized expression of ending MRR, while MRR is the monthly recurring revenue run rate.

Total MRR growth includes new customer MRR; net revenue retention excludes it.

Net revenue retention includes expansion, while gross revenue retention typically excludes expansion.

Churn represents a full cancellation; contraction represents reduced spend from a customer that remains.

Run-rate metrics are not automatically the same as recognized revenue or cash collected.

How to Decide

Choose this if: Use ending MRR to review the direct effect of a month's revenue movements before annualization.

Choose this if: Use ARR when an annualized run-rate view is needed, while recognizing that it assumes the ending MRR level continues.

Choose this if: Review total MRR growth alongside net revenue retention to separate acquisition effects from existing-customer performance.

Choose this if: Apply the same definitions of new, expansion, contraction, and churn in every reporting period.

Choose this if: Document treatment of reactivations, plan changes, credits, and multi-currency conversions to improve comparability over time.

Assumptions

ARR is calculated as ending MRR multiplied by 12.
The comparison uses general recurring revenue metric definitions; internal reporting definitions may differ.
Gross revenue retention is described as a measure excluding expansion MRR.
The measures are estimates based on consistently classified monthly revenue movements.

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Frequently Asked Questions

Is ARR better than MRR?

Neither is universally better. ARR gives an annualized run-rate view, while MRR is more direct for reviewing monthly recurring revenue movements.

Should new MRR be included in net revenue retention?

No. Net revenue retention is intended to measure the opening customer base, so new customer MRR is excluded.

What is the main difference between gross and net revenue retention?

Net revenue retention includes expansion MRR. Gross revenue retention excludes expansion and focuses on revenue retained after contraction and churn.

Can total MRR grow when net revenue retention is below 100%?

Yes. New customer MRR can outweigh losses from the opening customer base.

Do ARR and MRR equal revenue recognized in the accounts?

Not necessarily. They are recurring revenue run-rate measures and can differ from recognized revenue because of timing, contract terms, and accounting treatment.

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