TL;DR: Many founders report their ARR differently, blurring the lines of what the metric truly represents. Knowing what ARR is, how startups are reporting it, and what metrics can be used to report revenue is essential for understanding the health of your startup and for truthfully presenting your company to investors.
What Are the Different Metrics Used to Measure Revenue?
There are many ways to report your company’s revenue and information related to your company’s revenue, below are a few of the most common metrics used:
Annual Recurring Revenue (ARR): The contracted revenue a company generates each year
Monthly Recurring Revenue (MRR): The contracted revenue a company generates each month
Annualized Revenue Run Rate: An estimate of a company’s future annual revenue based on a shorter period of financial data. For example, projecting your annual revenue based on last quarter’s gross revenue.
Gross Merchandise Value (GMV): The total value of goods or services sold over a given period of time. This is a common metric in marketplaces.
Trailing Revenue or Trailing 12 Months (TTM): The total revenue a company has generated over the previous 12 months
How is ARR Different?
ARR vs MRR
In theory, you might be able to calculate ARR by multiplying MRR by 12. However, this can end up inflating your ARR if you have high churn and a non-annual billing period (e.g., monthly or quarterly).
Annualized Revenue Run Rate vs ARR
Annualized revenue run rate includes non-recurring revenue while ARR only reflects recurring, contracted revenue. Unlike ARR, annualized run rate can include revenue from things like one-time fees, seasonality, pilots, and more through a given year.
GMV vs ARR
GMV is especially relevant for marketplaces or platforms. GMV accounts to the total flow of money rather than a company’s revenue alone. For instance, if a customer purchases a product for $100 on a platform like Shopify, and Shopify takes a 10% fee, the GMV would be $100 while Shopify’s actual revenue is $10.
TTM is not the same as ARR
Unlike ARR, TTM reflects the revenue that that already been earned over the last year. TTM includes all revenue generated in the last 12 months, regardless of whether or not it is recurring. ARR is a more forward-looking metric, as it represents the revenue a company is expected to earn if based on contracts.
Why Does This Matter?
As described above, there are key differences to revenue metrics and confusing one for another can mislead your understanding and an investor’s understanding of your company’s health and performance. Being able to correctly analyze your startup’s revenue can also help you identify trends and make informed strategic and operational decisions in order to scale your business.
Today, the line between ARR and other revenue metrics is being blurred. Founders, intentionally or not, are often misreporting their ARR, leading VCs and investors to scrutinize ARR claims. Annualizing a strong or weak month of revenue, including income from pilots or contracts lacking signed renewals, can cause founders to lose credibility with investors.
Which Metric Should You Be Reporting?
Not every metric fits every business, so which one should you be tracking and reporting?
For SaaS companies or those with a subscription-based revenue model, ARR and MRR are the standard. They represent predictable, recurring inflow and are what most investors expect to see.
If you're a marketplace or platform, GMV can be a powerful indicator of traction, but remember that it reflects total transaction volume, not what you actually earn.
Annualized run rate can be especially useful for early-stage startups that don't yet have twelve months of data. It gives you and investors a window into how your business is performing even when the track record is short.
Lastly, TTM revenue is a strong metric for evaluating past performance and showing sustained momentum over a full year.
Overall, each metric describes something unique about your revenue, so choose the one that most honestly represents how your business makes money, and make sure you're calling it by the right name.
Bottom Line
Understanding the difference between revenue metrics like the ones described above is essential, as they are not interchangeable. Whether you are a startup preparing to raise or just trying to get a clear picture on your own company, taking the time to differentiate and understand what each revenue metric measures can help you choose the one that best fits your company. Founders who clearly and honestly report their revenue position themselves for success in the future.
