What to leave out of ARR and MRR
Which fees a SaaS business should leave out of annual and monthly recurring revenue, and how the SaaS pack keeps one-off fees apart in the ledger.
By Achekam · · 4 min read · For Software (SaaS) businesses in South Africa, Nigeria, Kenya
Launching soon. The Industry CRM add-on described in this article is launching soon. This article describes it as it will work at launch.
A Johannesburg software company closes its best month ever. Three new customers signed, each paying an onboarding fee, a training package and the first month's subscription. The founder multiplies the month's revenue by twelve, puts the result on a slide as "ARR", and sends it to an investor. The investor's analyst takes it apart before the next meeting.
Recurring revenue is the number that tells everyone, founders included, how much income the business can count on if it signs nobody new. That is only true if the number contains nothing but recurring fees. This article explains what belongs in annual and monthly recurring revenue, what must stay out, and how Achekam's SaaS pack keeps the two kinds of income in separate accounts so the figure can be read straight from the books.
What ARR is meant to measure
Annual recurring revenue answers a narrow question: if every current subscription simply continued for a year at today's price, how much would the business bill? Monthly recurring revenue asks the same over a month.
Andreessen Horowitz states that ARR should exclude one-time, non-recurring fees and professional service fees. It specifically warns against counting hardware, set-up, installation or consulting fees when multiplying a month's figure by 12. That multiplication is the trap in the opening example: a month with unusually high one-off fees, multiplied by 12, turns one good month into a fictional year.
The usual culprits
The fees that most often sneak into recurring revenue are the ones that arrive on the same invoice as the subscription:
| Fee | Recurring? | In ARR or MRR? |
|---|---|---|
| Per-seat or per-user subscription | Yes | Yes |
| Onboarding and set-up | No, charged once | No |
| Implementation or data migration | No | No |
| Training sessions | Usually once | No |
| Consulting or custom development | No | No |
| Hardware, such as card readers or devices | No | No |
Where a fee genuinely repeats on the same terms as the subscription, such as a monthly premium support plan, decide with your accountant whether it counts as recurring, write the rule down, and apply it the same way every month. Consistency matters more than the answer: an investor will forgive a conservative definition but not one that changes from quarter to quarter.
Deals that are not revenue or bookings yet
The opposite mistake is counting money that has not been committed at all. Andreessen Horowitz explains that bookings are the value of a contract that obliges a customer to pay, while revenue is recognised when the service is provided or ratably over the subscription. It adds that letters of intent and verbal agreements are neither revenue nor bookings.
So a pipeline full of "the CFO said yes on the call" belongs in a sales forecast, not in ARR and not in bookings. A signed order form is the minimum.
MRR or ARR: which one leads
Stripe Atlas draws a useful line between low-touch and high-touch SaaS. It describes low-touch SaaS as designed for most customers to buy without sustained one-on-one human contact, sold mainly through the website and e-mail marketing, often after a trial period, and generally on month-to-month subscriptions. It states that low-touch price points cluster around $10 a month for business-to-consumer applications and in the $20 to $500 range for business-to-business, and that low-touch businesses treat MRR as their most important metric while high-touch businesses treat ARR as theirs.
Those dollar figures describe the market Stripe writes about, not South African, Nigerian or Kenyan pricing. The distinction still helps: a self-service product sold month to month is best tracked in MRR, and an enterprise product sold on annual contracts after demos and negotiation is best tracked in ARR. Andreessen Horowitz's guide to 16 startup metrics sets out how investors define recurring revenue, bookings and the other figures they ask for.
Keeping recurring and one-off fees apart in the SaaS pack
A recurring revenue figure is only as good as the ledger behind it. If subscriptions and set-up fees land in the same revenue account, someone has to pick them apart from invoices every month.
The SaaS & B2B tech pack in Achekam's Industry CRM speaks the industry's language: customers are Accounts, deals are Opportunities, projects are Onboarding projects and quotes are Order forms. Switching the pack on adds the industry's revenue accounts to the business's chart of accounts and its unpriced starter items to the catalogue. The starter catalogue lists per-seat subscriptions, onboarding and set-up, training and premium support, posting to two accounts:
- Subscription revenue (4610) for the recurring charge;
- Implementation and training fees (4620) for the work done once.
An invoice line names the revenue account and product it sells, so when an order form becomes an invoice, the subscription lines and the one-off lines post to their own accounts in the same journal. Recurring revenue for the month can then be read from the Subscription revenue account, with implementation fees visible beside it but kept out. How the order form becomes an invoice is covered in order forms that post subscription revenue, and the wider principle of CRM documents reaching the books is explained in how the CRM posts to your ledger.
Two cautions remain. First, where premium support sits depends on the rule you set above. Second, a ledger account shows revenue billed and recognised, not the run-rate of contracts; ARR is still a calculation from your subscription list, but one you can now check against the books.
Before your next investor update, list every fee type you charge, mark each as recurring or one-off, and recalculate ARR from subscriptions alone.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
