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Your investors’ metric of choice – ARR & MRR
ARR or MRR? Learn which recurring revenue metric investors prefer at each stage, how to calculate both, and how to present them in your board pack.
ARR stands for Annual Recurring Revenue. It is used to understand the annualized revenue for a company, particularly for businesses with a subscription or SaaS model.
ARR is easy to calculate. It is just monthly recurring revenue multiplied by 12. Yes, it’s that simple!
Monthly Recurring Revenue (MRR) can be slightly more complex as it requires:
- Identifying revenue that is truly recurring
- Allocating annual or quarterly to each relevant month
Why are ARR and MRR important for investors?
ScaleXP provides a full auditable view of MRR and ARR, down to each invoice (and each line within an invoice). This was a complex piece of automation, so why did we take the time?
ARR is a good measure of future revenue, far better than revenue on the P&L, as it provides a far superior better indication of growth. This is particularly true when revenue is changing quickly, either increasing or decreasing.
To illustrate this point, we will look at the example of your local gym – which generates sales by selling memberships – during COVID-19.
Example 1: Prior to the pandemic, the gym was busy with 1000 subscribers. Some pay quarterly; most pay monthly. The average fee is $50 per month, making MRR $50,000, and ARR is $600,000. Revenue on the P&L is the same.
Example 2: COVID-19 hits, and 25% of members cancel their membership in a single month. The cancellation period is two months, so there is no immediate impact to reported revenue, as everyone is still being charged during the cancellation period. MRR, however, has now fallen to $37,500 (calculated as 750 members at $50 per month). ARR is now $450,000.
The distinction between these numbers highlights the power of ARR. Investors prefer to assess ARR, rather than reported revenue.
Example 3:COVID-19 finally ends (thankfully!). The gym, unfortunately, has just 50% of its original customers. It launches a marketing campaign, offering two months free on an annual contract. They get 100 subscribers.
Once again, ARR and MRR provide a superior view of the business.
Key Takeaways
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ARR (Annual Recurring Revenue):
- A metric for annualized revenue, especially relevant for subscription or SaaS models.
- Calculated simply by multiplying Monthly Recurring Revenue (MRR) by 12.
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MRR (Monthly Recurring Revenue):
- Involves identifying genuinely recurring revenue.
- Requires allocating annual or quarterly revenue to each relevant month.
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Importance for Investors:
- ARR provides a clearer picture of future revenue and growth trends.
- More accurate than standard P&L revenue, especially during rapid revenue changes.
Quick question
What’s most frustrating about reporting your SaaS metrics?
Choose as many as apply.
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Reporting-time estimator
How long does it take you to report your SaaS metrics each month?
Your accounting system
How long do your metrics and board reporting take today? Working days per month, roughly
Which of these do you still build by hand? Select all that apply
Which of these takes the most time? Pick one
Your estimate
≈ 1.5days back every month
Board pack ready in about 1 day instead of 2–3 days
- Prepared by ScaleXP
- Finance review
- Still manual
ScaleXP calculates the metrics you selected from your live Xero and CRM data, reconciled to the accounts, and places them in a board pack your team reviews rather than builds.
Using ScaleXP to automate ARR and MRR
Most businesses are far more complex than this simple example of our local gym. In almost all cases, there will be some combination of quarterly and annual invoices mixed with monthly ones. To add to the complexity, some types of revenue are recurring while others are not, and these are frequently hard to separate.
As a result, calculating MRR and ARR can take time. Too often, accounting revenue must be exported to a spreadsheet and recalculated, taking hours each month and risking errors.
This is the main reason ScaleXP has fully automated these calculations. The system recognizes quarterly, and annual invoices based on the invoice description. Each type of revenue can be tagged as recurring or not. The output is a full auditable view of MRR and ARR, down to each invoice (and even each line within an invoice).
Being able to reliably and instantly extract reliable recurring revenue data has a positive knock-on effect. The next level of analysis is to identify high growth customers by examining lifetime value and cohort analysis. This is now infinitely faster and easier.
ScaleXP is continuously pushing the boundaries of business data analysis through time saving automation and visualization. Our single-minded mission is to help companies grow faster.Read more about benchmarking funding stages here.
Frequently asked questions
Why do investors focus on ARR and MRR when valuing SaaS companies?
Investors focus on ARR and MRR because recurring revenue shows the predictable, forward-looking income of a subscription business far more clearly than a standard P&L, especially when revenue is changing quickly. MRR reveals month-to-month momentum, while ARR, calculated as MRR multiplied by 12, frames the annual run rate that valuations are built on. ScaleXP calculates both automatically from Xero, QuickBooks Online or Zoho Books and HubSpot, Salesforce or Pipedrive. Founders and CFOs give investors accurate, up-to-date recurring revenue metrics whenever they ask.
Can ScaleXP calculate ARR and MRR automatically from accounting data?
Yes, ScaleXP calculates ARR and MRR automatically from the invoices in Xero, QuickBooks Online or Zoho Books, with Stripe billing data flowing in through the accounting connection. Annual and quarterly invoices are allocated to the correct months, one-time charges are kept out of recurring revenue, and HubSpot, Salesforce or Pipedrive data adds customer and deal context. Tom, Commercial Analyst at SquaredUp, recalled: “Calculating MRR and ARR alone required half a day each month.” ScaleXP turns that manual job into an automated, reconciled monthly output finance teams can rely on.
How does ScaleXP show investors what drives changes in monthly recurring revenue?
ScaleXP shows investors what drives changes in monthly recurring revenue through an automated waterfall that separates new, expansion, contraction, churned and reactivated MRR. When customers cancel, ScaleXP makes the drop and its cause visible immediately rather than burying it in the P&L, and a recovery after a campaign is just as clear. Each movement traces back to specific customers and invoices in Xero, QuickBooks Online or Zoho Books. Investors see a clear, honest growth story, and finance teams explain recurring revenue trends with confidence.
What does a finance team get from ScaleXP for ARR and MRR investor reporting?
ScaleXP gives finance teams a complete ARR and MRR investor reporting toolkit: live dashboards, AI dashboards, an AI report builder and PowerPoint board packs, all fed by automated metrics. Alongside ARR and MRR, ScaleXP calculates NRR, GRR, churn, cohort analysis, LTV, CAC and CAC payback from the same Xero, QuickBooks Online or Zoho Books and CRM data, so every figure is consistent. Presentation mode lets finance leaders drill down to the underlying data during investor meetings. Recurring revenue reporting becomes fast, accurate and repeatable every month.
How ScaleXP does this
ScaleXP calculates MRR, ARR, churn, retention and more from your CRM and accounting data, with no spreadsheets. See ScaleXP’s SaaS metrics