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Counted honestly
Monthly recurring revenue is the clearest measure of a subscription business and the easiest to overstate — because what recurs and what merely arrived look identical on a bank statement.
This keeps the definition honest by separating the two, then gives you MRR, ARR, ARPU and the month’s movement.
What counts, and what does not
Only predictable, recurring, contracted revenue. That is the whole test, and it excludes several things that feel like they should qualify.
- In: monthly subscription fees, annual contracts divided by twelve, and recurring add-ons and seat expansions.
- Out: one-off setup and onboarding fees, professional services, usage overages that vary month to month, and anything not under contract.
- An annual contract is divided by twelve, not booked in the month it was paid. Booking it whole produces a spike that is not growth.
Why the inflation is worse than it looks
Counting setup fees as recurring revenue makes growth look best in exactly the months you should be most worried — the months you signed a lot of new logos and have not yet found out whether they stay.
- It overstates MRR, which overstates ARR, which overstates your valuation multiple.
- It also hides churn: a month where real recurring revenue fell can still look like growth if enough setup fees landed.
- The correction always arrives, usually in a quarter where nothing new was signed.
The movement is the interesting part
A single MRR figure tells you where you are. The breakdown tells you why — and whether the number is going to hold.
- New and expansion add; churned and contraction take away.
- When expansion exceeds churn you have negative churn, and revenue grows without a single new customer.
- That is net revenue retention above 100%, and it is the strongest position a subscription business can be in.
ARR is just MRR times twelve
Which sounds obvious and is worth saying, because ARR gets quoted as though it were a separate, larger achievement.
- ARR = MRR × 12. It is the same number annualised, not a different one.
- ARPU = MRR divided by customer count, and it is the figure that tells you whether growth is coming from more customers or better ones.
- Annualising a single good month is how ARR gets overstated. Use a settled MRR, not your best one.
- 1Settle the MRRRecurring only, annuals divided by twelve.
- 2Multiply by twelveThat is ARR. Nothing more.
- 3Divide by customersThat is ARPU.
Four numbers worth keeping
Why Parix.ai gives this away
We build subscription products, and almost every disagreement about growth turns out to be two people using different definitions of MRR. Settling that is free, and worth more than most dashboards.
Work out my MRRWho uses it
Founders reporting to a board, operators tracking whether a good month was real, and investors reading a subscription business from the outside.
The numbers around it
Churn sets lifetime, so check the Churn Rate Calculator, then the LTV Calculator and Rule of 40, which both take this figure as an input.
When the definition is the problem
If two people in the business quote different MRR, that is not a reporting problem — it is a definition problem, and it is worth half an hour to settle before the next board pack.