What is CMRR: Committed Monthly Recurring Revenue

What is CMRR?

CMRR stands for Committed Monthly Recurring Revenue. It is a forward-looking metric that predicts the recurring revenue a company can expect each month. CMRR combines existing Monthly Recurring Revenue (MRR) with contracted agreements for new customers and subtracts any churn expected from cancellations. It essentially gives SaaS companies a clearer view of their expected future performance by accounting for both gained and lost revenue.

To put it simply, CMRR helps businesses assess revenue stability and plan for sustainable growth. It is particularly designed to account for revenue fluctuations by incorporating dilutions or enhancements from contract changes, renewals, or churn.

Why is CMRR Important for SaaS Companies?

For SaaS companies, CMRR provides valuable insight into financial stability and growth patterns. Here’s why it matters:

• Predictability: Knowing what revenue can be relied upon enables better financial and operational planning. With more predictable revenue streams, companies can strategically direct resources towards growth initiatives.
• Churn Management: By incorporating expected churn, CMRR gives an adjusted revenue figure, prompting SaaS companies to develop strategies to enhance customer retention and mitigate revenue loss.
• Investment Attraction: Investors look at CMRR to understand the financial health and growth potential of a SaaS business. A high CMRR usually indicates a robust future revenue stream.

How to Calculate CMRR?

Calculating CMRR involves a few steps but is crucial for accurate financial forecasting. Here’s how you can calculate it:

1. Start with existing MRR: Use the current Monthly Recurring Revenue as the base.
2. Add New Contracts: Add the revenue expected from any new contracts or upgrades that are not yet included in your current MRR.
3. Subtract Churn: Deduct revenues from customers you anticipate will cancel (churn) in the future.

The formula is generally given as: CMRR = (Current MRR + contracted new revenue) - anticipated churn.

For example, if a company has $100,000 in MRR, expects $5,000 from newly contracted agreements, and anticipates $3,000 from churn, the CMRR would be $102,000.

Understanding how to calculate CMRR alongside tracking recurring revenue trends can provide deeper insights into the company's financial dynamics.

Conclusion

CMRR is an indispensable metric for SaaS companies aiming to understand their growth trajectory. By measuring and predicting revenue commitments effectively, companies can ensure they are on track for long-term success. As companies evaluate their CMRR, they are better positioned to manage their financial strategies effectively, addressing changes like increasing renewals and reducing churn to maintain a healthy growth path. Thus, companies are able to focus on sustainable revenue generation, leading to enhanced investor confidence and business scalability.