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ARR Calculation Errors: Beyond MRR Times 12

ARR Calculation Errors: Beyond MRR Times 12. ARR is not simply MRR times 12. This common mistake can misrepresent your business health and mislea...

September 7, 2025By Sarah Chen

ARR is not simply MRR times 12. This common mistake can misrepresent your business health and mislead investors.

The MRR x 12 Problem

Multiplying current MRR by 12 ignores seasonality, contract timing, and growth trajectory. It provides a snapshot, not an accurate annual projection.

Proper ARR Calculation

ARR should reflect annualized value of active contracts. For monthly subscribers, multiply by 12. For annual contracts, use contract value. Never double-count.

Handling Mixed Contract Types

Normalize all contracts to annual value. Monthly contracts multiply by 12, quarterly by 4, multi-year divide by contract years. Sum for total ARR.

Common Edge Cases

Usage-based revenue, one-time fees, and professional services require careful handling. Generally exclude non-recurring items from ARR.

Frequently Asked Questions

When does MRR x 12 equal ARR?

Only when you have no annual contracts, no seasonality, and stable MRR. In practice, this is rare. Always calculate ARR properly.

Should I include usage-based revenue in ARR?

Include only if usage is predictable and contracted. Variable usage is better tracked separately from committed ARR.

Key Takeaways

Accurate ARR calculation is essential for financial planning and investor communication. Take time to calculate it correctly.

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