ARR vs MRR vs Revenue: Why They Don't Match and How to Reconcile Them

Why the three numbers never match (and why that's fine)

Someone in the business will eventually multiply monthly revenue by 12, compare it with ARR and ask which one is wrong. Usually neither. ARR and MRR are snapshots of the recurring contracts you have at a point in time. Revenue is what you earned over the month under accounting rules. They measure different things, so the job isn't to make them equal; it's to explain the gap, every month, in a way that ties back to the ledger.

Key terms

• MRR (monthly recurring revenue): the monthly value of recurring subscription contracts that are live at a given date, usually month-end.
• ARR (annual recurring revenue): the same thing, annualised. Most commonly ARR = MRR × 12.
• Revenue: income recognised in the P&L for the period under IFRS 15 or FRS 102, as the service is delivered.
• Billings: what you invoiced in the period. Annual upfront billing makes billings lumpy; revenue stays smooth.
• Deferred revenue: amounts billed for service not yet delivered, held on the balance sheet and released to revenue over time.
• CARR (contracted ARR): ARR including contracts signed but not yet live.
• KPI (key performance indicator): a company-defined measure. ARR and MRR are KPIs, not accounting standards measures.

The common definitions, and how they vary

ARR and MRR have no official definition. IFRS, FRS 102 and US GAAP don't mention them. That means every company picks its own rules, and two companies' ARR numbers often aren't comparable. The table shows the most common choice and the variations you'll meet.

None of these choices is "correct". What matters is that the policy is written down, applied every month and explained to whoever reads the number.

AI shortcut: give an approved AI assistant your current ARR policy (or a description of how the spreadsheet works today) and ask it to list every question in the table above that the policy doesn't answer. It's a fast way to find the gaps before an investor or auditor does. A person decides the answers.

The six usual reasons ARR, MRR and revenue differ

1. Timing within the month. MRR is a month-end snapshot. A customer who joined on the 20th is in full MRR but earned only part of a month's revenue. One who left on the 15th is out of MRR but still earned half a month.
2. Non-recurring revenue. Implementation, setup, training and consulting revenue sits in the P&L but not in ARR.
3. Usage and overage. Variable usage revenue is usually left out of ARR because it isn't contracted to recur.
4. Credit notes and one-off adjustments. A goodwill credit for an outage reduces revenue but usually doesn't change MRR.
5. Signed but not live. A contract starting next month may be in CARR but earns no revenue yet.
6. FX and pricing differences. If ARR uses a budget FX rate and revenue uses actual rates, the two drift apart in any month the rate moves.

Billings are a seventh number again. A £60,000 annual invoice adds £60,000 to billings, £5,000 to MRR and £5,000 a month to revenue.

How to reconcile MRR to revenue each month

AI shortcut: export the customer-level MRR list for this month and last month, plus the revenue-by-customer report from the ledger. Ask an approved AI tool to list every customer where revenue ÷ MRR is outside 0.9 to 1.1, with the likely reason (part month, credit note, usage, services). You get a short list to investigate instead of a long one. Check each reason against the invoice or contract.

Worked example: MonthEndClub Co Ltd, October

MonthEndClub Co Ltd (fictional) measures MRR at month-end on live contracts, at the price charged, excluding usage and one-off fees. ARR = MRR × 12. At 30 September, MRR was £80,000, so ARR was £960,000.

What happened in October:

• Customer A started on 1 October on a 12-month contract at £60,000 a year, billed upfront. That's £5,000 MRR.
• Customer F (£1,000 MRR) left when its contract ended on 15 October. It earned half a month: £500.
• Customer C signed on 20 October for £24,000 a year, starting 1 November. Not live, so not in MRR; it's in CARR.
• An implementation project worth £6,000 was completed and delivered in October.
• Usage overage revenue for October was £1,500.
• A goodwill credit note of £800 (excluding VAT) was issued after a service outage.
• All other customers (£79,000 MRR) were billed and served for the full month with no changes.

Step 1: the MRR and ARR movement

Step 2: October revenue in the ledger

Customer A's invoice and first month's release, for reference (VAT at the UK standard rate of 20%, as at October 2026):

Step 3: the reconciliation

Notice what the board sees: ARR of £1,008,000 and monthly revenue of £91,200. Revenue × 12 would be £1,094,400, which overstates the recurring business by £86,400 because it annualises one-off services, usage and a part month. Meanwhile, October billings included Customer A's full £60,000, which says nothing about recurring run rate either. Three numbers, three jobs.

If you report under US GAAP (ASC 606)

Revenue recognition for a plain subscription works in much the same way under ASC 606 as under IFRS 15, so the reconciliation steps don't change. ARR and MRR are still company-defined measures. US-listed companies also face SEC staff expectations on how key performance metrics are defined and presented, which tends to push for clearer written definitions and consistency between periods.

Common mistakes and audit watch-outs

• ARR built from billings. Annual invoices make billings spike in renewal months. ARR built from billings swings around for no real reason.
• Including one-off fees. Setup and implementation fees in ARR flatter the number and won't recur.
• Counting signed-not-live as ARR without saying so. If you include future starts, call it CARR and show it separately.
• Changing the definition quietly. If the policy changes, restate prior months or show the effect, and say so in the pack.
• No customer-level list. An ARR total with no customer list behind it can't be checked by anyone, including you.
• Using AI to "fix" the gap. An AI tool asked to make two numbers agree may invent a plausible reconciling item. Use it to list differences by customer; every reconciling item still needs a source document.

Tools that can help

Billing systems such as Chargebee and Stripe Billing produce MRR reports from subscription data; check their default rules (especially discounts, trials and usage) against your written policy. Ledgers like Xero, QuickBooks or NetSuite give revenue by customer. Reporting tools such as Fathom or Syft help present the result. Many teams still do the reconciliation itself in Excel or Google Sheets. Tools speed up the data; they don't replace a written definition and a monthly reconciliation.

Key takeaways

• ARR and MRR are snapshots of recurring contracts; revenue is what was earned in the period. They aren't meant to match.
• There's no official ARR definition. Write yours down, including discounts, usage, start dates, churn timing and FX.
• Reconcile closing MRR to ledger revenue every month: part months, services, usage, credits and FX explain most gaps.
• Keep billings, revenue and ARR as three separate numbers with three separate jobs.
• AI is useful for finding customer-level differences; a person ties each one to evidence and signs off.

FAQs

Is ARR just revenue × 12?

No. Revenue includes one-off services, usage and part-month amounts. ARR is usually month-end MRR × 12, based only on live recurring contracts. Annualising revenue typically overstates ARR when services or usage are material.

Should ARR include customers in a free trial?

Typically not. Most teams count a customer in MRR from the date they start paying. Some report trial users separately as a pipeline measure.

Do auditors check ARR?

ARR isn't part of the audited financial statements, so it's usually outside the audit opinion. But if ARR appears in the annual report, investor materials or covenant reporting, auditors and investors may ask how it's defined and how it reconciles to revenue.

Can AI calculate our ARR?

It can help. Given a customer-level subscription export and your written policy, an approved AI tool can draft the MRR list and flag records that look inconsistent (a start date after the invoice date, a missing end date). The policy, the final number and the sign-off stay with people.

Related guides

• How to Build an ARR Bridge (New, Expansion, Contraction, Churn)
• SaaS Revenue Recognition in Plain English (IFRS 15 / ASC 606)
• How to Build and Reconcile a Deferred Revenue Schedule
• Reconciling Your Billing System to the Ledger

More in Metrics and Reporting guides.

From the Club

For whoever gets asked "but why doesn't it match?" every single month. The Team Mug · The Dad Hat

Join the Club. New guides, early access and members-only batches. Join here.

This guide is general information about common practice. It isn't tailored to any business, and standards, tax rules and figures change. Check your own circumstances, the latest rules and, where needed, a qualified professional before acting.

Last reviewed: October 2026.