SaaS Metrics 1 – Improving Your Committed Monthly Recurring Revenue (CMRR)

Simon Kendrick.

 

While there are different views on which metrics to track in your SaaS business, it’s critical for you, your employees and your potential investors that you follow indicators that show your business is healthy and growing. In this short series we will explain four important metrics – CMRR, Customer Churn, MMR Churn Rate and Lifetime Value (LTV) over Customer Acquisition Cost (CAC) Ratio – to help you validate your company’s revenue stream, product/market fit, and ability to achieve profitability. In this post we explain Committed Monthly Recurring Revenue (CMRR).

You are no doubt familiar with Monthly Recurring Revenue (MRR). While it’s a great basic measure of the monthly amount of total revenue that’s subscription-based or recurring in nature – it only provides insights into the current run rate of a company. Committed Monthly Recurring Revenue – or CMRR – incorporates potential future changes in recurring revenue therefore providing a useful forecast of your company’s performance, based on what you know about your customers today. CMRR and how it trends over time allows you to more accurately forecast revenues giving you a better picture of the financial standing of the company.

 

How to calculate CMRR

The simple formula for calculating CMRR is as follows:

CMRR = MRR + Signed Contracts – Expected Churn

CMRR looks at current MRR, (New Business + Expansion – Contraction – Churn), then adds in signed contracts going into production and takes out revenue that’s likely to churn within the given period. The main categories included in the CMRR calculation include:

 

  • New Business MRR – this is monthly recurring revenues associated with new leads that convert to paid customers in a given time period.
  • Expansion MRR – Any increases in MRR from existing customers in a given time period. For example, an existing customer adds additional subscribers, upgrades or service packages.
  • MRR Churn – MRR from customers who cancel or fail to renew their subscription in a given period.
  • Contraction MRR – Any decreases in MRR from existing customers due to downgrading to a lower plan, adding or increasing a discount, or other special pricing reductions.

 

The following table sets out what is added and subtracted to MRR to calculate CMRR.

 

 

End of Q1 MRR CMRR
New Business
New Customer
New contracts signed, but not yet billed
Expansion
Increasing users
Additional Recurring Service package
SUBTRACT
Contraction
Lost to Competitor
No Longer Wants Service
Expected Churn
Not Returning Calls for Renewal

 

As you begin to use CMRR, be sure to keep a track of how you’re calculating it – and remain consistent over time. For example, your MRR data will likely live in your accounting software, but your customer information, contracts signed and actual and expected churn will be in your CRM. You will need to pull from both sources to connect each data set, and keep it up to date. A simple spreadsheet may be enough to manage this.

 

Why is it important?

Factoring in Signed Contracts that are going into production and Expected Churn shows a different picture than just MRR. If expected churn is much higher than new contracts entering production, this will give you an indication that you may have some revenue challenges down the road that you need to address. It could be that your new customer acquisition is not tracking to plan or there is something amiss in your service offering causing too many customers to not renew.

 

CMRR can be an important metric when looking to raise capital for your business. For equity investors CMRR is a key metric when forecasting the likely future revenues of the business – particularly how it trends over time. For lenders, it can affect the amount of revolving credit extended to your SaaS business – the credit line will grow or shrink based on the performance of the Company.

 

Sustaining a healthy CMRR with Multipli

Multipli’s subscription pre-payment funding helps sustain a healthy CMRR by paying you the agreed value of your signed contracts upfront. This will keep your MRR higher. However, it’s still important to keep an eye on your expected churn and rate of new contracts added to ensure your business continues to grow and builds a solid long term revenue base.

 

 

Next steps

Read SaaS Metric 2 – Understanding MRR Churn