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ARR and MRR Tell You Where You Are. Growth Rate Tells You Where You're Headed.

  • gandhinath0
  • Apr 23
  • 3 min read

ARR and MRR Growth Rates are key metrics for subscription businesses. They show how fast a company is growing its recurring revenue, both yearly and monthly.


For bootstrapped and self-funded SaaS firms, these metrics serve a different purpose. They guide critical decisions about hiring, product development, and market expansion. 


For venture-backed companies, these growth rates matter most during fundraising. Investors look at them every 18-24 months to gauge progress and set valuations. 


Strong growth in these metrics comes from four main areas:

  1. signing new customers,

  2. keeping existing ones,

  3. expanding current accounts,

  4. and smart pricing.


By tracking these numbers, companies spot problems early and know where to focus to spend wisely and maintain healthy cash flow.

What Are ARR and MRR Growth Rates

Definition:

ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) are snapshot metrics - they show what revenue you’ve accumulated.

ARR Growth Rate (YoY) measures the percentage change in ARR over consecutive 12-month periods.

MRR Growth Rate (MoM) measures how quickly your monthly revenue(MRR) is growing, as a percentage. 

You can look at it month-to-month ("10% growth in April") or across the year ("100% growth in 2024").

Formula:

MRR Growth (MoM) = [(This Month’s MRR – Last Month’s MRR)
                       ÷ Last Month’s MRR] × 100

ARR Growth (YoY) = [(This Year’s ARR – Last Year’s ARR) 
                       ÷ Last Year’s ARR] × 100

Example Calculation

MRR Growth Rate (MoM) Example: Let’s say your MRR in January was $100,000. In February, it increased to $110,000.

MRR Growth Rate = [(110,000 – 100,000) ÷ 100,000] × 100 
                         = 10% MoM growth

ARR Growth Rate (YoY) Example:Last year’s ARR was $1.8M. This year, you’ve reached $2.7M.

ARR Growth Rate = [(2.7M – 1.8M) ÷ 1.8M] × 100 = 50% YoY growth

These numbers sound strong yet tell only part of the story. The real insight comes from tracking these changes consistently, both monthly and yearly, to understand the actual trend.


Why It Matters

  • Spots early signals of performance trends

  • It's like having an early warning system - you'll know if you're off track months before those end-of-year numbers come in

  • See if seasonal dips or customer losses are hiding in your YoY numbers

  • Get hard data to support your GTM spending or hiring plans

  • Show investors your MoM growth isn't just stable - it's accelerating


In simpler terms, Growth rate tells the real story. Revenue numbers only show the past, but growth shows where you're headed. 


Common Growth Rate Calculation Mistakes to Avoid

  • Don't count one-time money in your MRR (Monthly Recurring Revenue). Only include regular, guaranteed revenue - not trials or setup fees.

  • Track what you're losing in MRR too. New sales minus churn (cancellations) and contraction (downgrades) = your real growth.

  • Consider seasonal patterns. Some businesses naturally peak and dip throughout the year, affecting MoM (Month-over-Month) rates.

  • Question your numbers. A Black Friday spike in ARR (Annual Recurring Revenue) isn't the same as real, sustainable growth.


Growth numbers only matter when they tell the true story.


Benchmarks: ARR & MRR Growth Rate by Stage

Source: SaaS Capital, ChartMogul, ScaleVP, KeyBanc (2023–2025)

Growth

 Stage

ARR Growth (YoY)

MRR Growth (MoM)

Strategic Priorities

Validation Seekers ($1M-$2M ARR)

80–120%

10–15%

Prove early traction Watch churn

Traction Builders ($2M-$4M ARR)

50–70%

8–12%

Drive expansion revenue Tighten CAC

Scale Preparers ($4M-$7M ARR)

30–50%

5–8%

Expand ACV Add pricing tiers

Growth Accelerators ($7M-$10M ARR)

25–40%

3–6%

Invest in GTM Benchmark "Rule of 40"


Making Growth Rate Work for You

Your growth rate does more than track numbers - it guides your biggest business moves. Here's how to read the signals:

  • Monthly MRR Growth (MoM): Shows if your product is working right now. Are customers sticking around? Buying more? This tells you if your current strategy is working.

  • Yearly ARR Growth (YoY): Helps with big decisions. Strong yearly growth means you might be ready to hire more people or raise money. Weak growth? Time to fix things first.

  • Watch Patterns: One good month isn't enough. Look for steady improvement over time. If growth starts slowing, that's your red flag.

  • Compare Smart: Don't measure yourself against random startup averages. Your growth goals should match your company's stage and sales type.

Pro Tip: Use both monthly and yearly numbers together. They'll tell you if you're building real momentum or just riding past success.


Key Takeaways

  • High ARR doesn't always mean success. A $10M company with flat growth might be in trouble

  • Low ARR with a strong growth rate shows you're onto something. A $1M company growing 20% MoM has more potential

  • Watch your MRR growth to spot current health status - it's like your monthly checkup

  • Track ARR growth to see your long-term potential - it's like your yearly physical

  • Use these metrics to time big moves: when to expand your GTM team, hire more people, or raise your next round


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