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
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 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 MRRCustomersCMRRCustomersNotesEnd of Q1$750,000100$750,000100New Business$50,0001$50,0001New Customer$40,0001$40,0001New Customer$50,0001Contract Signed; Not Yet Billed$40,0001Contract Signed; Not Yet BilledSubtotal$90,0002$180,0004Churned$100,000-1$100,000-1Lost to Competitor$20,000-1$20,000-1No Longer Wants Service$10,000-1$10,000-1Lost to CompetitorSubtotal$130,000-3$130,000-3Contraction$5,000$5,000Discount on Renewal$5,000$5,000Reducing UsersSubtotal$10,000$10,000Expected Churn$30,000-1Not Returning Calls for Renewal$10,000-1Continuing Technical IssuesSubtotal$40,000-2Expansion$50,000$50,000Increasing Users$20,000$20,000Adding Recurring Service PackageSubtotal$70,000$70,000End of Q2$770,00099$820,00099
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.
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 SaaS Metrics?
This guide explains the core metrics used to measure SaaS company success. Using simple examples, we’ll show you how to calculate each metric, and describe why specific indicators are important to investors.