In another post, we looked at the importance of tracking monthly recurring revenue (MRR) for SaaS companies. It's a basic but critical calculation that startups don't always get right, so it's worth checking your methodology if you haven't, before diving into other recurring revenue metrics.
Tracking various types of MRR can help SaaS entrepreneurs get a better read on the overall performance and trends of their company. These include:
New Business MRR
Expansion MRR
Contraction MRR
If you’re already tracking these metrics, you’re well on your way to adding a more forward-looking metric based on MRR: Committed Monthly Recurring Revenue (CMRR).
What is CMRR?
CMRR looks at current MRR, which is defined as (New Business + Expansion – Contraction – Churn), then adds in signed contracts going into production and subtracts out revenue likely to churn within that period.
Why CMRR is important
CMRR is not only useful internally; it is also often used by banks and other lenders as a baseline number in determining how much credit to extend to a business at any given point in time.
For example, the amount of revolving credit extended to SaaS companies is often based on a multiple of CMRR. The multiple is often rooted in customer retention rates.
Using CMRR and other customer-oriented SaaS metrics allows the credit line to grow or shrink based on the performance of the company, ensuring that the lender is not taking an outsized risk and your company is not taking on more debt than it can handle.
How to Calculate CMRR
Here’s a simple formula you can use for determining CMRR:
CMRR = MRR + Signed Contracts – Expected Churn
The example below helps illustrate the difference between MRR and CMRR.
| Detailed MRR | Customers | CMRR | Customers | Notes |
|---|---|---|---|---|---|
END OF Q1 | $750,000 | 100 | $750,000 | 100 | |
New Business | | | | | |
Subtotal | $50,000 $40,000 $90,000 | 1 1 2 | $50,000 $40,000 $50,000 $40,000 $180,000 | 1 1 1 1 4 | New cust New cust Contract signed - not billed Contract signed - not billed |
Churned | $90,000 | 2 | $180,000 | 4 | |
Subtotal | $100,000 $20,000 $10,000 $130,000 | -1 -1 -1 -3 | $130,000 $20,000 $10,000 $130,000 | -1 -1 -1 -3 | Lost to comp Service not wanted Lost to comp |
Contraction | | | | ||
Subtotal | $5,000 $5,000 $10,000 | | $5,000 $5,000 $10,000 | | Renewal discount Reducing users |
Expected Churn | | | | | |
Subtotal | | | $30,000 $10,000 $40,000 | -1 -1 -2 | Not returning calls for renewal Continuing technical issues |
Expansion | | | | | |
Subtotal | $50,000 $20,000 $70,000 | | $50,000 $20,000 $70,000 | Increasing users Adding recurring service package | |
END OF Q2 | $770,000 | 99 | $820,000 | 99 | |
As you can see in this example, CMRR has a more positive outlook than MRR. But there will be cases where CMRR can show a less favorable outlook, especially if expected churn is much higher than new contracts entering production.
Keeping track of CMRR
As with any SaaS metric, there is no one industry definition for measurement. As you begin to track this metric, be sure to document how you’re calculating this number—and remain consistent over time. Having thorough documentation of your accounting will make it easier when you have to discuss this metric with potential investors and lenders.
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