ARR and MRR
ARR and MRR are recurring-revenue measures used to separate durable subscription economics from one-time services, resale, setup fees, and usage spikes. ARR annualizes the recurring base; MRR expresses the same base monthly. In diligence, the key question is not the label but the rules: what is included, what churns, what expands, what is usage-dependent, and what is actually contracted.
The fastest way to lose buyer trust is to call every repeatable dollar ARR. Managed services, pass-through resale, implementation retainers, and consumption revenue can be valuable, but they do not carry the same multiple unless the contract terms, renewal behavior, margin profile, and expansion path support it.
For operators, ARR/MRR definitions should be written before a board pack or data room exists. If finance, sales, and customer success use different recurring-revenue rules, the company is not ready for serious diligence.
Related terms
- Bookings vs. Revenue — Bookings measure contracted sales commitments; revenue measures what can be recognized under accounting rules. Confusing them inflates forecasts and board confidence.
- Contract Value — The dollar value of a customer agreement, usually measured as ACV, TCV, or ARR depending on contract term and revenue model.
- Net Revenue Retention (NRR) — The percentage of recurring revenue retained from existing customers a year later, including expansion, after subtracting churn and contraction. The single most-watched B2B SaaS valuation metric.
Where this gets applied
- Unit Economics — CAC payback, NRR, gross margin by segment, cohort analysis, paid-on-bookings vs. paid-on-cash.
- Financial Infrastructure — ARR waterfalls, deferred-revenue rules, board-pack standardization, FP&A architecture.
- Exit Readiness — Pre-LOI cleanup. Financial reporting normalization, contract hygiene, IP assignment review, customer-concentration mitigation.