Committed Monthly Recurring Revenue (CMRR)

How to Calculate Committed Monthly Recurring Revenue (CMRR)

Committed monthly recurring revenue (CMRR) is a SaaS KPI metric that is a derivation of the monthly recurring revenue (MRR) metric.

The CMRR and MRR are closely intertwined metrics used to better understand a SaaS company's revenue quality.

• 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. However, one problem with the MRR metric is that new bookings 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:

• Step 1 ➝ Determine Beginning Monthly Recurring Revenue (MRR)
• Step 2 ➝ Adjust Beginning MRR for New MRR from New Bookings and Expansion MRR
• Step 3 ➝ Deduct Churned MRR

CMRR Formula

The formula for calculating 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 is based on 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 and 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 → For the churned MRR, existing customers—especially on the B2B side—will provide notice ahead of time of their decision to discontinue their relationship (or desire to downgrade to a lower-priced account tier) with the company's products/services.

Note: The fees received for services such as one-time installations or consultations are excluded.

CMRR vs. MRR: What is the Difference?

The committed monthly recurring revenue metric is perceived as more informative than monthly recurring revenue (MRR) because the metric includes all factors that affect MRR.

The MRR neglects churn, upgrades, and downgrades, which is why MRR is impractical for forecasting purposes.

CMRR is a forward-looking measure suited for setting future growth targets and tracking progress, whereas MRR is more of a trailing measure of past performance.

In particular, upholding the renewal rate and managing customer churn are key determinants of a SaaS company's long-term viability (and thus valuation).

CMRR Calculator — Excel Template

We’ll now move to a modeling exercise, which you can access by filling out the form below.

Excel Template | File Download Form

You’re logged in! Form submission not required. Access your file below.

Download File

1. SaaS Operating Drivers

Suppose a SaaS company's business model is oriented around selling two-year long contracts priced at a total contract value (TCV) of $1 million.

Given the total contract value (TCV), the implied annual contract value (ACV) is $500k.

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.

The total number of customers was 51 by the end of July, 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 schedule for July, we can see that 98 customers decided to renew.

• 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, the calculation would be far more complex in reality 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 equals the number of new bookings multiplied by the average CMRR per customer, totaling 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 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 $20k month-over-month increase for July.

• Ending CMRR = $4.2mm + $333k + $163k – $83k = $4.6 million