What is CMRR?
CMRR is an acronym for committed monthly recurring revenue. It is also sometimes referred to as contracted monthly recurring revenue.
CMRR is a metric used to calculate the sum of your company's monthly recurring revenue, including new subscriptions and account upgrades minus the customers it loses(churn) and account downgrades.
It is a metric that can help to decide how your company is progressing and allows you to project into the future.The committed monthly recurring revenue is especially useful in a company that operates on monthly or yearly subscriptions from customers. It considers the future since it allows the calculation of potential customer upgrades and downgrades.
Your company's CMRR begins with the last known monthly recurring revenue, adds new and upgraded subscriptions, and removes the downgraded and canceled subscriptions.
How to calculate CMRR?
Before you can calculate your CMRR, you need to know the value of the following metrics. These are:
This is known as Monthly Recurring Revenue. It is your company's total revenue from all subscriptions that are active in a month. MRR includes charges from coupons, add-ons, and discounts that are recurring. It does not take subscription upgrades, churn, and others into account.
You can calculate MRR by multiplying your average revenue per user(ARPU) and multiplying it by the total number of customers in a particular month.
If your Average Revenue Per User is $50 and the total number of customers is 50, your MRR is :
= $50 × 50
These are subscriptions that are expected to be activated in the next month after the contract has been signed.
These are from customers whose subscription plan requires them to upgrade after the month ends.
These are subscriptions from customers who are expected to downgrade from their plan, either because they said so or because your prices might not be favorable to them anymore
This is from customers who are expected not to renew their subscription after the month has ended.
For example, if you are calculating your CMRR in March, you should know the value of your MRR in February.
Let's assume that:
- The value of your MRR in February was $1000.
- Your estimated subscription upgrade for March is $200.
- Your new subscriptions are $300.
- Your downgraded subscriptions are $150.
- And your churn is $100.
- Then your CMRR calculation will be:
CMRR = $1000 + $300 + $200 - ($150 + $100) = $1250
The value of your committed monthly recurring revenue for March will be $1250.
What is the difference between MRR and CMRR?
CMRR is a measurement that considers potential subscription, churn, upgrade and downgrade, while MRR only measures your company's recurring monthly revenue from active subscriptions in that month alone.
Is higher CMRR better?
Yes. A higher CMRR is a positive indication that your company is on solid ground. It means that your company either has a decreased rate of churn and account downgrades or an increased rate of new subscriptions and account upgrades.
What is a good CMRR?
A good CMRR has a net growth of 15-25%, as stated by industry experts. Measures should be taken so that the CMRR stays positive, as a negative CMRR value would mean that the company is running at no profit or a low-profit rate.
How can the CMRR value be increased?
You can increase your CMRR value in the following ways:
- Reducing the amount of churn rate and subscription downgrades
- Engaging in company campaigns to increase the rate of new subscriptions.
- Improve your company's services to ensure more customers opt in for subscription upgrades.
Why do we use CMRR?
- CMRR is used as a forward-looking metric. Calculating this metric allows you to see your company's upgrades, downgrades, new subscriptions, and churn that are likely to occur.
- Most investors will request the CMRR of your SaaS company rather than the MRR because it is more realistic and shows more accurately how healthy your company is.
- CMRR allows you to conduct an insightful analysis of your company because of the breakdown of the different components of CMRR.
If your SaaS company is a large one with longer sales cycles, you will need CMRR for your steady-state projections