Why does ARR, MRR, and ACV matter?
These are the numbers investors ask for first, and they are routinely misstated in ways that are hard to unpick later. The word doing the work is *recurring*: one-off consulting, setup fees, and pilots that will not renew are revenue but not ARR, and including them produces a figure that looks fine until diligence. Getting the definition right early is much easier than restating it in front of an investor who has already seen the inflated number.
What does ARR, MRR, and ACV look like in practice?
A hundred practices paying $200 a month is $20,000 MRR and $240,000 ARR. If thirty of those are unpaid pilots, real ARR is $168,000 and the difference is the kind of thing diligence surfaces. ACV (here $2,400) is what tells you which sales motion the business can afford, which is often the more useful number of the three.
What are the common mistakes with ARR, MRR, and ACV?
- Counting non-recurring revenue in ARR.
- Annualizing a single strong month into a run rate the business has not sustained.
- Quoting ARR without churn, which is only half the picture.
- Ignoring ACV, which is what actually determines whether sales-led growth is affordable.
Related concepts
- Product-Led vs. Sales-Led GrowthTwo ways customers arrive: the product sells itself through direct use (product-led), or people sell it through conversations (sales-led).
- ChurnThe rate at which customers stop paying you, counted either as customers lost (logo churn) or as revenue lost (revenue churn), which can differ sharply.
- Unit EconomicsWhat it costs to acquire and serve one customer versus what that customer is worth. The question of whether the business works at the level of a single customer.