ARR and MRR: the SaaS metrics UK scaleup investors actually look at

ARR (annual recurring revenue) and MRR (monthly recurring revenue) measure the predictable, subscription-based revenue a SaaS company can count on repeating, and UK scaleup investors use them instead of standard accounting revenue because they strip out one-off income and show the underlying run-rate of the business.

In this guide: what ARR and MRR actually measure and how they differ from GAAP revenue, how the Rule of 40 combines growth and efficiency into one benchmark, what “good” looks like at different stages, and the limits of relying on these metrics alone. This is a general explainer, not financial or investment advice.

What is MRR and what is ARR?

MRR is the total predictable subscription revenue a company expects to receive in a given month; ARR is simply that figure annualised, usually calculated as MRR multiplied by 12.

Both metrics deliberately exclude one-off revenue, such as a single setup fee or a professional services engagement that won’t repeat, because the point of the metric is to show the recurring base the business can build forward projections on. A company with £50,000 of MRR has £600,000 of ARR; if that MRR grows to £60,000 the following month, ARR effectively moves to £720,000 on a run-rate basis, even though no year of trading has actually elapsed at that new level yet - which is worth remembering, since ARR is a snapshot projection, not audited annual revenue.

Why do investors prefer ARR/MRR over standard revenue figures?

Standard accounting revenue can include one-off income that won’t repeat, which makes it a poor guide to how sustainable a SaaS company’s growth actually is - ARR and MRR strip that out to show the recurring engine underneath.

Because subscription revenue tends to repeat month after month with relatively predictable churn, ARR and MRR let an investor project forward with more confidence than they could from a lumpy revenue line that includes a one-off enterprise contract or grant income. That said, the metrics are only as reliable as the definition behind them - a company that counts revenue not genuinely guaranteed to repeat (such as heavily discounted trial pricing) as part of its MRR is presenting a misleadingly strong number, so investors typically ask for a breakdown of what’s actually included.

What is the Rule of 40 and why does it matter alongside ARR?

The Rule of 40 is a heuristic that adds a SaaS company’s revenue growth rate to its profit margin (commonly free cash flow margin), with a combined score of 40% or higher generally seen as a healthy balance between growth and efficiency.

The logic is that a company can be a healthy business either by growing very fast while burning cash, or by growing more modestly while being profitable, and the Rule of 40 lets an investor compare companies pursuing very different strategies on one combined score. Industry benchmark data reported in 2026 put the median B2B SaaS company’s Rule of 40 score at around 25% in 2025, still well below the 40% target investors look for, though up from around 15% the year before - a sizeable single-year improvement attributed to a wider market shift toward capital-efficient growth after the higher interest rate environment made pure growth-at-any-cost strategies less attractive to investors.

Does the Rule of 40 apply to every SaaS scaleup?

The Rule of 40 becomes a more meaningful benchmark once a company has meaningful scale, and it’s generally treated as most relevant above roughly $20 million ARR, where growth rates naturally moderate and efficiency starts to matter more to investors than raw growth alone.

Below that scale, a very early SaaS company growing from a small revenue base can post extremely high percentage growth rates that make the Rule of 40 calculation look artificially strong (or a temporary dip look artificially weak), so most investors weigh raw ARR growth more heavily than the combined Rule of 40 score at seed and early Series A stage, before shifting emphasis toward the combined metric as the company scales.

What other metrics do investors look at alongside ARR and MRR?

ARR and MRR show the size of the recurring revenue base, but they say nothing on their own about how much of that revenue is retained over time or how efficiently it was acquired, which is why investors also weigh churn, net revenue retention, and customer acquisition cost alongside the headline recurring revenue figure.

Churn measures the rate at which existing customers cancel or downgrade, usually expressed as a monthly or annual percentage of revenue or customer count lost. Net revenue retention (NRR) takes this further by netting expansion revenue (existing customers spending more, through upsells or seat growth) against churned revenue from the same customer base, and a company with NRR above 100% is growing its revenue from existing customers alone, before counting any new customer acquisition at all - a figure investors generally weigh heavily because it shows the product is getting more valuable to the customers who already use it. Customer acquisition cost (CAC), and how it compares to the lifetime value of a customer, shows how efficiently the ARR was actually built, which matters because two companies can post identical ARR figures while one acquired that revenue far more cheaply than the other.

ARR/MRR and the Rule of 40: what each actually shows

Metric	What it measures	Best used for	Limitation
MRR	Predictable monthly subscription revenue	Month-to-month tracking of the recurring base	Snapshot only - doesn’t capture annual seasonality
ARR	MRR annualised (MRR x 12)	Headline scale comparison between companies	A run-rate projection, not audited annual revenue
Rule of 40 (growth % + margin %)	Balance between growth speed and capital efficiency	Comparing companies pursuing different growth strategies	Only meaningful once a company has reached meaningful scale (commonly cited around $20m+ ARR)

Key takeaways

• MRR is predictable monthly subscription revenue; ARR is that figure annualised - both deliberately exclude one-off, non-repeating income.
• ARR and MRR are run-rate projections, not audited annual accounts, and their reliability depends entirely on how strictly “recurring” is defined.
• The Rule of 40 (growth rate plus profit margin) is the main way investors weigh growth against efficiency, with 40%+ still the target score.
• The Rule of 40 becomes most meaningful once a company has reached meaningful scale; very early-stage companies are usually judged more on raw ARR growth.
• Net revenue retention above 100% and a healthy CAC-to-lifetime-value ratio show whether ARR was built on a durable, efficiently acquired customer base rather than just a large headline number.