MRR and ARR Explained: How Subscription Revenue Is Actually Measured

MRR is monthly recurring revenue: the normalized value of subscription contracts in force, expressed per month. ARR is the same number annualized — for a business on monthly terms, simply MRR × 12.

Neither is an accounting measure. You will not find MRR in any accounting standard, on any financial statement, or in an audit report. It is an operating metric that answers a question the income statement deliberately does not: if nothing changed, what would we bill next month?

What counts as recurring

The value of MRR comes entirely from discipline about what goes into it. Include:

• Subscription fees under active contracts, normalized to a month (an annual plan of 2,400 € contributes 200 €)
• Committed recurring add-ons and seat expansions
• Recurring discounts, as a reduction

Exclude:

• One-off setup, implementation and training fees
• Professional services and custom work
• Usage overages that vary month to month — unless genuinely stable, and then say so
• Hardware sales
• Trials and unsigned pipeline

The test is whether the amount will recur next month without anyone doing anything. Blend in one-off fees and MRR stops being a run-rate and becomes a worse version of revenue.

The movement bridge

A single MRR figure is nearly useless. The bridge between two periods is where the information lives:

Opening MRR
  + New          (new customers)
  + Expansion    (upgrades, more seats)
  − Contraction  (downgrades, fewer seats)
  − Churn        (customers who left)
= Closing MRR

A worked month, in euros:

Component	Amount
Opening MRR	42,000
New	+3,800
Expansion	+1,400
Contraction	−900
Churn	−2,300
Closing MRR	44,000

Growth of 2,000 €, but the composition is the diagnosis. Net revenue retention here is (42,000 + 1,400 − 900 − 2,300) ÷ 42,000 = 95.7% — the existing base is shrinking, and growth depends entirely on new sales. A business at 110% NRR grows without selling anything new; one at 95% is refilling a leaking bucket. Same closing MRR, completely different company.

MRR is not revenue

The two diverge constantly, and confusing them causes real errors:

	MRR	Accounting revenue
Basis	Contracted run-rate at a point in time	Earned in a period
Governed by	Your definition	IFRS 15 / national GAAP
One-off fees	Excluded	Included
Annual prepayment	Spread evenly by definition	Spread as delivered — usually the same, not always
Mid-month changes	Often counted at full value	Pro-rated
Auditable	No	Yes

An annual contract signed on 15 March adds its full monthly value to March MRR by most definitions, while recognized revenue for March is half a month. Both are correct for their own purpose. What is not correct is presenting MRR × 12 as a revenue forecast, or reconciling one to the other and expecting agreement.

The relationship worth keeping straight: deferred revenue is the balance-sheet consequence of billing ahead of delivery; MRR is the operating view of the contracts producing it; recognized revenue is what the accounts report. Three views, one business.

Where the numbers get inflated

• Counting bookings as MRR. A signed three-year deal is not three years of instant MRR; it is monthly value that recurs.
• Including one-off fees. The most common inflation, and it shows up as unexplained MRR churn the following month.
• Ignoring involuntary churn. Failed card payments that end a subscription are churn, whatever the intent.
• Counting annual contracts at cash value. A 2,400 € annual payment is 200 € of MRR, not 2,400 €.
• Currency drift. Converting foreign subscriptions at each period's rate makes MRR move when nothing happened. Normalize to a fixed rate for the metric, and keep the accounting conversion separate — see multi-currency accounting.

What Nordlet does and doesn't do

Stated plainly: MRR and ARR are not computed by the product. There is no subscription-metrics report, no MRR movement bridge and no churn calculation. Anyone claiming otherwise about an accounting API is usually describing a billing platform.

What the ledger provides is the material those metrics are built from, at a granularity that makes them auditable rather than a spreadsheet nobody trusts:

• Recurring agreements with their billing terms, and the invoices generated from them.
• Recognition schedules — POST /v1/sales/recognition-schedules/list returns per-line scheduled amounts and dates, which is the closest thing to a contractual run-rate the accounting side holds.
• Invoice lines with periods, so contracted value per customer per month is derivable.
• Webhook events — sale_invoice.issued and sale_invoice.paid — so a metrics service can react to changes rather than re-reading the whole book.

The sensible division of labour: the ledger owns what is legally true (recognized revenue, deferred balances, receivables), and the metrics layer owns the operating view. Building MRR from the ledger rather than parallel to it is what keeps the two reconcilable when an investor asks why they differ.

FAQ

What is the difference between MRR and ARR?

ARR is the annualized form of MRR — for a business on monthly subscriptions, MRR × 12. ARR is conventional for annual-contract businesses and MRR for monthly ones; they carry the same information.

Is MRR the same as revenue?

No. MRR is a normalized run-rate of contracts in force at a point in time; revenue is what accounting standards say was earned in a period. One-off fees, mid-period pro-rating and recognition rules all make them differ, and MRR is not an audited figure.

Should one-off fees be included in MRR?

No. Setup, implementation and professional-services fees do not recur, so including them overstates the run-rate and produces phantom churn the following month. Report them separately.

What is net revenue retention?

Expansion minus contraction and churn, measured against the opening base of existing customers, excluding new sales. Above 100% means the existing base grows by itself; below means new sales are replacing losses before adding growth.

How do annual contracts affect MRR?

They are normalized: an annual contract of 2,400 € contributes 200 € of MRR, regardless of being billed once up front. The cash arrives at once, the deferred revenue balance carries the undelivered portion, and MRR reflects the monthly value.