What is ARR / MRR?
ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) measure the predictable, recurring revenue a subscription business earns, normalized to a year or a month. They exclude one-time fees and focus on the dependable revenue base that recurs each period.
These metrics are the heartbeat of SaaS businesses. Teams track their movement through components: new MRR (from new customers), expansion MRR (upgrades), contraction MRR (downgrades), and churned MRR (cancellations). Net new MRR sums these to show whether the business is growing or shrinking.
For PMs, ARR/MRR connect product work to the business. Features that drive expansion (upsells, higher tiers) or reduce contraction and churn directly move these numbers. Understanding the recurring-revenue model is essential for prioritization and for making credible business cases.
Examples
- A product with 1,000 customers paying $100/month has $100k MRR and $1.2M ARR.
- A PM ships usage-based add-ons that generate expansion MRR from existing customers.
Where PMs use this
Related terms
Churn Rate
The percentage of customers (or revenue) lost over a given period — the inverse of retention.
Customer Lifetime Value (LTV)
The total revenue (or profit) a business expects to earn from a customer over the entire relationship.
Unit Economics
The direct revenues and costs associated with a single unit (usually a customer), revealing whether a model is profitable.
Pricing Model
The structure that determines how a product charges customers — e.g., flat, tiered, usage-based, or freemium.