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Estd 4.22.2023
In the fast-evolving SaaS landscape, tracking the right metrics can mean the difference between sustainable growth and unexpected revenue shortfalls. While Monthly Recurring Revenue (MRR) has long been a staple metric for subscription businesses, forward-thinking SaaS executives are increasingly turning to Committed Monthly Recurring Revenue (CMRR) for a more predictive view of their business trajectory.
What is Committed Monthly Recurring Revenue (CMRR)?
Committed Monthly Recurring Revenue represents the predictable, contractually obligated revenue a SaaS business expects to receive on a monthly basis. Unlike standard MRR, which only captures current subscription revenue, CMRR incorporates signed contracts that haven't started billing yet, while also factoring in anticipated changes like upgrades, downgrades, and churn.
CMRR provides a forward-looking perspective by including:
- Current active subscriptions
- Signed contracts awaiting implementation
- Committed upgrades from existing customers
- Anticipated downgrades that have been communicated
- Known churn where customers have indicated non-renewal
As Jason Lemkin, founder of SaaStr, notes, "CMRR is the single most important metric in SaaS. It tells you where your business will be in 30, 60, 90 days—not just where it is today."
Why CMRR Matters for SaaS Executives
1. Provides Predictive Financial Visibility
Unlike traditional MRR, which offers a snapshot of current revenue, CMRR delivers predictive insight into future cash flows. This forward-looking perspective enables more accurate financial forecasting and planning.
According to data from OpenView Partners' 2023 SaaS Benchmarks Report, companies that regularly track CMRR demonstrate 15% more accurate revenue forecasting compared to those tracking only MRR.
2. Enables More Accurate Valuation
For companies seeking investment or preparing for acquisition, CMRR offers a more complete picture of the business's financial health. Investors increasingly use CMRR as a valuation metric because it factors in the strength of the contract pipeline.
Research from PitchBook reveals that SaaS companies with growing CMRR receive valuations 1.2-1.5x higher than companies with similar current MRR but stagnant or declining CMRR.
3. Highlights Early Warning Signs
By incorporating known future changes to subscription revenue, CMRR can serve as an early warning system for potential revenue issues. A declining CMRR despite stable MRR indicates trouble ahead, allowing leadership to take corrective action before revenue actually drops.
4. Improves Strategic Decision Making
With a clearer picture of future revenue, executives can make more informed decisions about hiring, marketing spend, product development investments, and expansion plans.
How to Calculate CMRR
The basic formula for calculating CMRR is:
CMRR = Current MRR + Contracted MRR (not yet billing) + Committed Upgrades - Committed Downgrades - Committed Cancellations
Let's break down each component:
- Current MRR: All active, paying subscriptions
- Contracted MRR: Signed deals that will start billing in the coming months
- Committed Upgrades: Additional revenue from existing customers who have agreed to expand usage
- Committed Downgrades: Revenue reductions from customers planning to reduce their subscription level
- Committed Cancellations: Revenue that will be lost from customers who have given notice of non-renewal
Implementing CMRR Tracking in Your Organization
1. Define Clear Commitments
For CMRR to be accurate, you need clear definitions of what constitutes a "commitment." This typically includes:
- Signed contracts
- Formal renewal agreements
- Written confirmation of upgrade/downgrade intentions
- Cancellation notices
Avoid including verbal commitments or sales pipeline opportunities that haven't formally closed.
2. Establish a Consistent Tracking System
Create a standardized system for recording and updating CMRR data. Most modern subscription management platforms like Chargebee, Recurly, or Stripe Billing offer CMRR tracking capabilities. Alternatively, you can build custom reporting in your CRM or financial management system.
3. Set Regular Review Cadence
According to a study by Gainsight, companies that review CMRR weekly show 23% better retention rates than those reviewing monthly or quarterly. Implement a regular cadence for reviewing CMRR changes, ideally weekly for high-growth companies or monthly at minimum.
4. Compare CMRR to Actuals
Regularly assess the accuracy of your CMRR predictions against actual realized revenue. This helps refine your commitment definitions and improves forecast accuracy over time.
CMRR Best Practices from Industry Leaders
Adobe's shift to their Creative Cloud subscription model demonstrates the power of CMRR tracking. According to their 2022 annual report, implementing rigorous CMRR forecasting reduced revenue volatility by 27% during their business model transition.
Salesforce, another CMRR pioneer, attributes their consistent growth partly to disciplined CMRR tracking. Their former CFO Mark Hawkins shared at Dreamforce 2019 that "tracking committed revenue rather than just current revenue" helped the company maintain its impressive growth trajectory through market fluctuations.
Common CMRR Pitfalls to Avoid
- Including non-committed opportunities: Only include contracts with actual signatures or formal commitments
- Ignoring expansion revenue risk: Just because an upgrade is signed doesn't mean it will implement successfully
- Forgetting to update when circumstances change: CMRR requires diligent updating as customer situations evolve
- Overlooking services revenue: Professional services often accompany SaaS contracts and should be factored into overall revenue forecasts, though separated from core CMRR
Conclusion
Committed Monthly Recurring Revenue provides SaaS executives with a powerful lens for viewing their business's financial future. By incorporating both current reality and contractually committed changes, CMRR delivers predictive insights that standard MRR metrics simply cannot match.
As subscription businesses face increasing competition and economic uncertainty, the forward-looking nature of CMRR becomes even more valuable. Organizations that implement rigorous CMRR tracking gain a significant advantage in forecasting accuracy, strategic planning, and ultimately, sustainable growth.
For SaaS leaders looking to strengthen their financial forecasting, implementing CMRR tracking should be considered not just a best practice, but an essential component of sound business management.