Predicting the future doesn’t necessarily call for sorcery or magic.
You could also do it with a bit of fun number crunching.
Contracted or committed monthly recurring revenue (CMRR) is a SaaS metric to forecast future recurring revenue.
How can you use it?
In this article, we’ll explore what CMRR is, the formula to calculate it, and a good benchmark for SaaS businesses. We’ll also cover its benefits and other SaaS metrics to track alongside it.
Further Reading
- Go through our actionable tips on how to increase your product’s Monthly Active Users significantly.
- Check out 5 pro tips to achieve a higher First Call Resolution Rate.
- Learn the key differences between CARR vs. ARR and why they matter.
This Article Contains:
- What Is CMRR?
- How to Measure CMRR
- Why Is it Important for Your SaaS Business to Track CMRR?
- Acceptable Ranges for CMRR
- 2 Other Important Financial Metrics
Let’s get started.
What Is CMRR?
First things first, CMRR is pronounced: “see-mer” 🧐
Committed monthly recurring revenue, or contracted monthly recurring revenue (CMRR), is a predictive SaaS metric for valuing recurring revenue.
Simply put, CMRR tells you how much money you can expect to make each month from your subscribing customers.
It combines your recognized MRR with new bookings, customer churn, upgrades, and downgrades. In doing so, it measures the net cash flow of your subscription billing revenue.
How is MRR different from CMRR?
Monthly recurring revenue (MRR) is a vital SaaS metric for subscription-based companies that identifies your recognized monthly subscription revenue. On the other hand, CMRR is the adjusted MRR after accommodating cancellations, new bookings, downgrades, and upsells.
So, while MRR offers insights into your current subscription revenue and growth potential, CMRR predicts future changes to the subscription revenue of your SaaS business.
The bottom line:
CMRR provides a more accurate projection of subscription income than what you could infer through just MRR.
And if you want to calculate it for annual contracts, you can calculate the contracted annual recurring revenue (CARR).
However, before we move any further, let’s get something clear:
Committed monthly recurring revenue and contracted monthly recurring revenue are often used interchangeably.
On occasion, there can be a slight difference!
- Contracted MRR refers to contractually-guaranteed recurring income or subscription revenue. You can think of it as recurring revenue resulting from a formal agreement. This means you can’t include non-contractual revenue (eg: installation charges) even if it’s on your revenue recognition schedule.
For example, a free-trial user purchases a 3-year plan but still has 20 days left in their free trial. It’ll become recognized recurring revenue only after the free trial ends. - Committed MRR can refer to recurring revenue that doesn’t arise from a formal agreement with a customer. For example, the service fee for customers using a software company’s payment gateway. The transactions aren’t part of a formal agreement, but the software company can reasonably expect the customers to pay this fee on a recurring basis.
The good news?
If your business doesn’t have non-contractual recurring revenue, you can treat them as the same metric.
Who Should Track CMRR?
CMRR is essential for SaaS businesses, especially ones with a subscription-based pricing model. It provides a good overview of their growth and targets for that month.
Having said that, it could also be used by SaaS companies that don’t use a subscription model. Such businesses can forecast their monthly revenue based on reasonable expectations of non-contractual revenue or past data.
Read on to know how to calculate your CMRR:
How to Measure CMRR
Contracted or committed MRR takes existing MRR, new bookings, expansion, and revenue churn into account.
Use this formula to calculate it:
| Committed MRR =MRR + New Bookings + Upsell bookings – Downgrade bookings – Churn |
Let’s break down each of those components:
- MRR is your predictable monthly recurring revenue, typically calculated based on subscription billing. So, if a software company has 10 customers who pay $100 at the beginning of a month, their MRR is $1000. But when the company acquires 5 more customers who pay $100 at the end of the month, their new MRR is $1500.
- New bookings are the new customer subscriptions or purchases for the coming month committed via contract. These subscriptions will eventually become a part of your recognized recurring revenue stream.
- Upsell bookings or expansion MRR is the additional revenue from every existing customer. Expansion MRR accounts for customers purchasing upgrades, add-ons, or additional non-core products. It could be a $100-plan customer upgrading to a $150 plan or purchasing $50 worth of add-ons.
- Downgrade bookings is the decrease in MRR from each existing customer due to downgrades to a lower plan, discounts, or pricing changes. It’s also called contraction MRR. For example, if a $100-plan customer downgrades to a $50 plan for the next month.
- Churn is the average revenue lost from unsubscriptions for the given period. So, if you lost one $100-plan customer, your MRR churn is $100.
In addition to what’s mentioned above, some other factors can impact your CMRR calculations, like:
- Acquired CMRR: An increase in CMRR due to acquiring another legal entity’s subscriptions.
- Renewal uplift CMRR: The increase in CMRR due to the inflation of pricing plans or the ending of discount periods. P.S. Such changes also affect your customer lifetime value.
- Currency change markdown: A decrease in CMRR on foreign transactions due to a change in transactional currency (eg: dollar to euro) and currency value fluctuations.
Are all these terms confusing you?
Don’t worry — we’ve explained how CMRR works with an example below.
How Often Should You Measure CMRR?
It’s best to calculate your CMRR every month. Tracking it consistently (read: month-over-month) can help you accurately forecast your guaranteed revenue.
Moreover, monitoring CMRR monthly will help you stay on top of sudden increases in churn or downgrade bookings. You’ll be able to catch and tackle problems that lead to churn before they do severe damage.
Now that you know how to measure CMRR, let’s see why it’s important for your SaaS company.
Why Is it Important for Your SaaS Business to Track CMRR?
You’ve explored the what and how of CMRR.
Time to answer this question:
Below are the benefits of tracking your contracted or committed monthly recurring revenue:
- Predicting future revenue: Committed or contracted MRR accurately forecasts your monthly recurring revenue, helping you set SaaS intelligence or analytics-backed goals for growth. It also aids in planning operations and expenditures, like increasing customer support, marketing, and customer success budgets.
- Assessing financial health: An increasing CMRR growth rate (month over month) indicates financial growth. However, a decreasing growth rate (churned CMRR) implies financial decline due to losing customers or not generating enough sales (insufficient customer acquisition).
- Identifying customer retention issues: Committed monthly recurring revenue is affected by customer churn. So, if it’s low, it means you’re losing money due to cancellations or downgrades. This indicates low customer satisfaction, meaning you should invest more in customer retention and customer success strategies.
- Identifying drivers of growth: Since CMRR is calculated monthly, it helps you pinpoint the key drivers that contributed positively to past financial growth. This can include promotions, product launches, discounts, etc.
And that’s not all…
Investment firms and banks also use CMRR to determine how much credit to extend to a SaaS business at any given time.
Now you may be wondering:
What’s the CMRR benchmark for SaaS companies?
Let’s find out.
Acceptable Ranges for CMRR
Industry experts consider a CMRR that’s growing at a net rate of around 15-25% to be good.
What’s more?
You could also track your CMRR as a percentage of your monthly recurring revenue to indicate the stability of your customer base.
Consider this: A SaaS company with 70% CMRR to MRR indicates a stable consumer base with low churn. Whereas a subscription business with 30% CMRR to MRR has fewer committed customers and a higher churn rate — indicating issues with customer satisfaction.
What CMRR Looks Like in Action
Suppose your subscription business has an MRR of $1,000 at the start of the month.
In addition to that:
- You convert 5 customers who’ll provide an average revenue of $20 each starting next month
- 4 of your existing customers upgrade from $20 plans to $50 plans
- 2 customers canceled their $10 subscriptions
- 3 customers downgraded from $20 to $10 plans
So, you have an MRR of $1,000, $100 in new bookings, $120 in upsell bookings [4*(50-20)], $30 in downgrade bookings [3*(20-10)], and $20 in MRR churn.
In this case, your CMRR would be $1,170.
Here’s how:
Committed MRR = 1,000 + 100 + 120 – 30 – 20 = 1,170
Now, let’s assume your new CMRR in the next two months is $1,240 and $1,350.
That would give you a CMRR growth rate of 5.98% and 8.87% month over month.
Growth rate (month 1 and 2) = 1,240 – 1,170 / 1,170 * 100 = 5.98%
Growth rate (month 2 and 3)= 1,350 – 1,240 / 1,240 * 100 = 8.87%
While these growth rates are good, they could be better.
In such cases, your SaaS business could benefit from:
- Implementing better customer support, retention, and success strategies to reduce your churn rate and downgrades.
- Initiating marketing campaigns to increase your new customer bookings or subscriptions.
- Increasing the professional services you provide so customers are more likely to opt for subscription upgrades.
But wait, there are other important SaaS metrics to track along with CMRR for true SaaS intelligence.
Let’s take a look.
2 Other Important Financial Metrics
CMRR, like customer lifetime value, customer acquisition cost, or any other SaaS KPI, can’t provide all the business growth answers you need by itself.
That’s why it’s beneficial to track your committed monthly recurring revenue along with these metrics:
1. Annual Recurring Revenue (ARR)
Annual recurring revenue (ARR) is the recognized subscription revenue earned during a year. It’s different from CARR since it only accounts for live subscriptions.
Similar to your monthly recurring revenue, ARR is an essential metric since it’s needed to calculate your contracted annual recurring revenue (covered below).
Try using this formula to calculate your ARR:
| Annual Recurring Revenue = Subscription revenue + Upgrade revenue – Downgrade revenue – Churn |
Be sure to calculate the variables in this equation based only on data from the year in question.
2. Contracted Annual Recurring Revenue (CARR)
Like CMRR, CARR is a SaaS KPI that predicts the subscription revenue of all contracts signed during the year.
CARR also includes the revenue from customers on the revenue recognition schedule (ones that aren’t live yet).
Both CMRR and CARR are useful predictors of future revenue for SaaS companies. CMRR is good for companies with monthly contracts, while CARR is optimal for companies with mostly annual contracts.
Below is the formula to calculate CARR:
| Contracted ARR = ARR + New Bookings + Upsell bookings – Downgrade bookings – Churn |
Forecast Your Recurring Revenue with CMRR
Contracted or committed monthly recurring revenue helps you forecast your subscription revenue or cash flow.
It accurately portrays how churn, contraction, and expansion MRR affects your future revenue, helping you plan for short-term and long-term growth.
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