What is Committed Monthly Recurring Revenue (CMRR)?
CMRR, shorthand for “committed monthly recurring revenue”, represents a company’s monthly recurring revenue taking into account new bookings and churn.
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How to Calculate Committed Monthly Recurring Revenue (CMRR)
CMRR provides an insightful, forward-looking view into the future state of a SaaS subscription-oriented company where revenue is contractual.
The CMRR metric is a derivation of the monthly recurring revenue (MRR) metric and the two metrics are closely tied to each other.
But one problem with the MRR metric is that new bookings and churn – i.e. the revenue lost from customer cancellations – is not considered.
CMRR fixes that issue by accounting for the impact of new customer bookings and customer (and MRR) churn.
In order to calculate a company’s CMRR, the MRR serves as the base metric, as one would expect given the relationship between the measures.
From MRR, CMRR adjusts for the following factors:
- New Bookings (i.e. Signed Customer Commitments)
- Expansion CMRR (e.g. Upselling, Cross-Selling, Upgrade to Higher Tier)
- Churned CMRR (e.g. Non-Renewals, Cancellations, Downgrades to Lower Priced Tier)
CMRR vs. MRR SaaS Metrics
CMRR is a forward-looking measure useful for setting future goals and tracking progress, whereas MRR is more-so a trailing measure of past performance.
In comparison to monthly recurring revenue (MRR), CMRR is perceived as the more informative metric because of the inclusion of all factors that affect MRR.
While we should not devalue the standalone MRR metric, the CMRR reflects reality more closely and is more practical for forecasting purposes.
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.
The CMRR can be projected, unlike MRR, as MRR neglects churn, upgrades, and downgrades.
The primary use-case of CMRR is to forecast the MRR in the coming year since unlike the annual recurring revenue, expansion and churned MRR are taken into account.
The ARR metric annualizes MRR by simply multiplying MRR by 12, ignoring expansion recurring revenue and churn.
In contrast, CMRR adds the future committed MRR and subtracts the MRR likely to be lost, making it more reliable for predicting future revenue.
The formula for calculating the CMRR starts with the existing MRR at the beginning on the month.
From the beginning MRR, adjustments are made pertaining to the new MRR from new bookings, expansion MRR, and churned MRR.
- Ending CMRR = Beginning CMRR + New Bookings CMRR + Expansion CMRR – Churned CMRR
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 stemming 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.
As a side note, the fees received for services such as one-time installations or consultations are generally excluded from CMRR.
Usage of the CMRR Metric
Practically speaking, CMRR is a relatively new metric in the SaaS industry, so there is less standardization in terms of which items to include or exclude.
Unlike MRR, CMRR is impacted by more drivers, which creates more room for discretion.
CMRR should thereby be closely examined to truly grasp the metric’s calculation and drivers, otherwise, there can easily be a misunderstanding caused by simple differences in the calculation.
For example, some firms calculate CMRR with far more conservative assumptions than others, such as whether to include new bookings with future start dates.
In fact, some firms exclude CMRR entirely to understand retention better, much like the net revenue retention (NRR) metric.
CMRR Calculator – Excel Template
We’ll now move to a modeling exercise, which you can access by filling out the form below.
SaaS Subscription CMRR Example Calculation
Suppose a SaaS startup’s business model is oriented around selling two-year long contracts priced at a total contract value (TCV) of $1.2 million.
Given the TCV, the implied annual contract value (ACV) is $50k.
If we divide the ACV by the duration of the customer contract expressed on a monthly basis, the average CMRR per customer is $4k.
- Total Contract Value (TCV) = $1.2 million
- Contract Term = 24 Months
- Annual Contract Value (ACV) = $1.2 million ÷ 24 Months = $50k
- Average CMRR Per Customer = $50k ÷ 12 Months = $4k
At the start of the next month, July 2022, the total number of customers is 48.
Per company records and customer reports from the sales and marketing team, the projected number of new bookings is 4 while the number of non-renewals is only 1.
By the end of July, the total number of customers is 51, a net increase of 3 customers.
- Beginning Customers = 48
- New Bookings = 4
- Non-Renewals = –1
- Ending Customers = 48 + 4 – 1 = 51
From the customer roll-forward for the month of July, we can see the number of customers that decided to renew was 47.
- Renewals = 48 – 1 = 47
We now have the necessary inputs to build the CMRR schedule, starting with the beginning CMRR of $200k, which we calculated by multiplying the average CMRR per customer by the beginning customer count.
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.
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 $17k.
As for 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 47 customers, resulting in an expansion CMRR of $8k.
- Upsell Rate = 4%
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 CMRR churn rate is thus 2.1%)
The following values are the inputs used to calculate our hypothetical company’s end-of-period CMRR.
- Beginning CMRR = $200k
- New CMRR = $17k
- Expansion CMRR = $8k
- Churned CMRR = –$4 million
In the final step of our modeling exercise, we’ll adjust the beginning CMRR for each input and arrive at an ending CMRR of $220k – which reflects a month-over-month increase of $20k for the month of July.
- Ending CMRR = $200k + $17k + $8k – $4k = $220k