What is CMRR?
CMRR, shorthand for “committed monthly recurring revenue”, is a SaaS company’s monthly recurring revenue (MRR), while taking into account new bookings and churn.
How to Calculate CMRR?
CMRR, or “committed monthly recurring revenue”, is a SaaS KPI metric that is a derivation of the monthly recurring revenue (MRR) metric.
The CMRR and MRR are two closely intertwined metrics used to better understand the revenue quality of a SaaS company.
- Committed Monthly Recurring Revenue (CMRR) → The CMRR provides an insightful, forward-looking view into the future state of a SaaS subscription-oriented company where revenue is contractual.
- Monthly Recurring Revenue (MRR) → The MRR serves as the base of the calculation, as one would reasonably expect given the relationship between the measures. But one problem with the MRR metric is that new booking and churn – i.e. the revenue lost from customer cancellations – are not considered.
CMRR fixes the shortcomings of the MRR metric by accounting for the impact of new customer bookings, expansion revenue, and customer (and MRR) churn.
The CMRR calculation is a three-step process:
- The calculation of committed monthly recurring revenue (CMRR) starts with the existing MRR at the beginning of the month.
- From the beginning MRR, adjustments are made pertaining to the new MRR from new bookings and expansion MRR.
- Once the positive MRR operating drivers are accounted for, the final step is to deduct any churned MRR.
The formula to calculate the committed monthly recurring revenue (CMRR) is as follows.
The details surrounding each formula input are provided below.
- Beginning CMRR → The CMRR of a company at the start of the opening period.
- New Bookings CMRR → The new CMRR from recent conversions of leads into paid customers on a contractual basis.
- Expansion CMRR → The new CMRR a company can expect with near certainty from upselling or cross-selling to existing customers.
- Churned CMRR → The anticipated CMRR lost from customer churn (i.e. non-renewal or cancellations) in the month, as well as the lost MRR from downgrades by existing accounts.
The point that each adjustment must be near guaranteed is a critical aspect of the metric’s credibility.
- New Bookings → For instance, the MRR from new bookings should be comprised of closed deals with customers, rather than “pending” deals with potential customers in a company’s pipeline.
- Expansion MRR → If we apply the same rule to expansion MRR, that means expansion MRR must consist of upselling or cross-selling where there is a strong basis for assuming the new MRR.
- Churned MRR → As for the churned MRR, existing customers – especially on the B2B side – will provide notice of their decision to discontinue their relationship (or desire to downgrade to a lower-priced account tier) with the company’s products/services ahead of time.
Note: The fees received for services such as one-time installations or consultations are excluded.
What is the Difference Between CMRR vs. MRR?
In comparison to monthly recurring revenue (MRR), the committed monthly recurring revenue metric is perceived as the more informative metric because of the inclusion of all factors that affect MRR.
The MRR neglects churn, upgrades, and downgrades, which is the reason MRR is not practical for forecasting purposes.
CMRR is a forward-looking measure useful for setting future goals and tracking progress, whereas MRR is more of a trailing measure of past performance.
In particular, one of the key determinants of the long-term viability of a SaaS company (and thus valuation) is upholding the renewal rate and managing customer churn.
We’ll now move to a modeling exercise, which you can access by filling out the form below.
1. SaaS Operating Drivers
With that being said, it is safe to assume that the company is in the later stages of its growth cycle, i.e. growth equity stage.
If we divide the ACV by the duration of the customer contract expressed on a monthly basis, the average CMRR per customer is $42k.
- Total Contract Value (TCV) = $1 million
- Contract Term = 2 Years
- Annual Contract Value (ACV) = $1 million ÷ 2 Years = $500k
- Average CMRR Per Customer = $500k ÷ 12 Months = $42k
At the start of the next month, July 2022, the total number of clients is 100. Per company records and customer reports from the sales and marketing team, the projected number of new bookings is 8 while the number of non-renewals is only 2.
By the end of July, the total number of customers is 51, a net increase of 3 customers.
- Beginning Customers = 100
- New Bookings = 8
- Non-Renewals = –2
- Ending Customers = 100 + 8 – 2 = 106
From the customer roll-forward for the month of July, we can see the number of customers that decided to renew was 98.
- Renewals = 100 – 2 = 98
2. CMRR Calculation Example
We now have the necessary inputs to build the schedule, starting with the beginning committed monthly recurring revenue (CMRR) of $4.2 million.
Of course, in reality, this calculation would be far more complex because each customer contract varies in price and is customized to meet the specific needs of the customers (and factors such as discounts by team size can further complicate these matters) – but this simplification is acceptable for illustrative purposes.
- Beginning CMRR: The beginning CMRR at the top of our roll-forward schedule is calculated by multiplying the average CMRR per customer by the beginning customer count.
- New CMRR: The next line item is that the new CMRR is equal to the number of new bookings multiplied by the average CMRR per customer, which comes out to roughly $333k.
- Expansion CMRR: As for the expansion CMRR, we need to make an assumption regarding the upsell rate, which we’ll set at 4%. Using the 4% upsell rate, we’ll multiply that rate by the number of renewals and customers, resulting in an expansion CMRR of $163k.
- Churned CMRR: The churned CMRR requires no assumption, as it is a function of our non-renewal assumption from earlier (i.e. one lost customer) and the average CMRR.
Since only one customer churned, the churned CMRR equals $4k (and the churn rate is thus approximately 2.0%)
The following values are the inputs used to calculate our hypothetical company’s ending CMRR.
- Beginning CMRR = $4.2 million
- New CMRR = $333,000
- Expansion CMRR = $163,000
- Churned CMRR = –$83,000
In the final step of our modeling exercise, we’ll adjust the beginning committed monthly recurring revenue (CMRR) for each input to arrive at an ending CMRR of $220k, which reflects a month-over-month increase of $20k for the month of July.
- Ending CMRR = $4.2mm + $333k + $163k – $83k = $4.6 million