Annual recurring revenue (ARR) and monthly recurring revenue (MRR) are the same idea at two different cadences: the predictable, subscription-based revenue a company earns, normalized to a yearly or monthly run rate. ARR is simply MRR multiplied by twelve. One-time fees, professional services, and usage overages that do not recur are deliberately left out, because the point of the metric is durability, not the size of any single invoice.
Recurring revenue is the foundation the rest of the SaaS scoreboard sits on. Net revenue retention, gross revenue retention, and lifetime value are all measured against it, and movements in ARR are usually decomposed into four buckets.
- New ARR from customers signed this period.
- Expansion ARR from upsell and cross-sell into the existing base.
- Contraction ARR from downgrades and seat reductions.
- Churned ARR from cancellations, the revenue lost to customer churn.
Why customer success owns the back half
Sales drives the new bucket, but expansion, contraction, and churn are decided after the customer is already a customer, which makes them the domain of customer success. A company growing new ARR quickly while bleeding it out the back through churn is filling a leaky bucket. Watching the health score of the installed base is how you keep the back three buckets pointed the right way.
Merrily reads product events, invoices, and conversations to attribute movement in recurring revenue to the accounts driving it, so an unexpected dip in MRR has a name and a reason, not just a number on a board slide.