As a SaaS entrepreneur, there are countless numbers, statistics, and metrics that you need to track and calculate to assess the health of your business, but the sheer number of acronyms can be overwhelming. In this series on key SaaS metrics, we’ll walk you through the most common—and helpful—metrics you need to know to successfully run and grow your SaaS business. 

In a previous post, we looked at the importance of tracking monthly recurring revenue (MRR) for SaaS companies. Tracking various categories of MRR can help entrepreneurs get a read on the overall performance and trends of their company.

  • New Business MRR – MRR associated with 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. These could be the result of customers adding additional subscriptions, upgrading, etc.
  • Contraction MRR – Any decreases in MRR from existing customers in a given time period. These could be the result of downgrading to a lower plan, adding or increasing a discount, etc.
  • MRR Churn – MRR from customers who cancel or fail to renew their subscription in a given period.

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, as defined as (New Business + Expansion – Contraction – Churn), then adds in signed contracts going into production and subtracts out revenue that is likely to churn within that period.

 

Why CMRR is important

Unlike MRR, which only yields insight into the current run rate of a company, CMRR incorporates potential future changes, providing a forecast for the company’s performance, based on what you know about your customers today.

Knowing your CMRR and how it is trending over time can enable you to more accurately forecast revenues and get a better picture of the financial standing of the company.

CMRR is not only useful internally; it is also often used by banks or other lenders as a baseline number in determining how much credit to extend 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 too much debt.

 

How to calculate CMRR

Here’s a simple formula you can use for determining CMRR:

CMRR = MRR + Signed Contracts – Expected Churn

The example below shows the difference between MRR and CMRR.

Detailed MRR Customers CMRR Customers Notes
End of Q1 $750,000 100 $750,000 100
New Business
$50,000 1 $50,000 1 New Customer
$40,000 1 $40,000 1 New Customer
$50,000 1 Contract Signed; Not Yet Billed
$40,000 1 Contract Signed; Not Yet Billed
Subtotal $90,000 2 $180,000 4
Churned
$100,000 -1 $100,000 -1 Lost to Competitor
$20,000 -1 $20,000 -1 No Longer Wants Service
$10,000 -1 $10,000 -1 Lost to Competitor
Subtotal $130,000 -3 $130,000 -3
Contraction
$5,000 $5,000 Discount on Renewal
$5,000 $5,000 Reducing Users
Subtotal $10,000 $10,000
Expected Churn
$30,000 -1 Not Returning Calls for Renewal
$10,000 -1 Continuing Technical Issues
Subtotal $40,000 -2
Expansion
$50,000 $50,000 Increasing Users
$20,000 $20,000 Adding Recurring Service Package
Subtotal $70,000 $70,000
End of Q2 $770,000 99 $820,000 99

As you can see, taking into account signed contracts that are going into production and expected churn shows a different picture than just MRR. In this example, CMRR has a more positive outlook than MRR. However, there will be cases where CMRR can show a less favorable outlook, especially if expected churn is much higher than new contracts entering production.

 

Keep track

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 will make it easier when you have to share this metric with potential investors and lenders.

Want more metrics?

Download our guide, The 8 SaaS Metrics that Matter, to learn more about calculating metrics and using them to quantify your company’s successes for investors.

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