Why Sales Forecasting can't help you plan your sales team
Accurate financial planning has always been crucial for sustainable growth, but with tech plagued with instability, the need to plan and...
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Overview
Both Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) are simple to calculate and easy to work with, and the only real difference in how to work with them is the time period that they look at.
In SaaS, when a client signs a contract it will likely have a couple of different commercial components:
Price
Term (duration)
Payment Terms
The price will typically dictate how a deal is paid, however it doesn't neccessarily always mean (especially in the case of monthly recurring payments) that it will be paid monthly, especially in the case of contracts where a monthly cost is negotiated but with up-front payment terms.
The Annual Recurring Revenue relates to all of the recurring revenue that can be attributed to a client in each year of a contract, with Monthly Recurring Revenue simply being either the monthly amount or equivalent (if paid in single annual chunks of cash).
Working between them is pretty simple:
Annual Recurring Revenue is simply your Montly Recurring Revenue amount multiplied by 12
Monthly Recurring Revenue is simply your Annual Recurring Revenue amount divided by 12
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