By James Bell
Committed Monthly Recurring Revenue is a metric that we use in forecasting recurring revenue in future periods. You may also hear CMRR called Contracted Monthly Recurring Revenue. CMRR gives you an idea of future inflows and outflows of Monthly Recurring Revenue which is important when managing a subscription based business model. We build upon the Monthly Recurring Revenue from the previous month as a basis to forecast forward. You can do this as an iterative process in forecasting future revenues.
This metric also helps potential future investors value your business. In addition, it can also give you an idea of what an exit may look like as an investor or owner. If you google this term, you will see a lot of different variations to how this metric is calculated. It’s important to make this metric work for you and your business so feel free to tweak it, expand on it, or not even use it at all.
The annualized version of this is called CARR, or Committed Annual Recurring Revenue and it’s very similar. If you work with subscriptions that have annual renewals, you can use CARR instead of CMRR. You can even break down CARR monthly for forecasting so don’t feel restricted to the “annual” part of CARR. As with most of our metrics, we will often look at this by product, bundle or various offerings and can compare performance to better allocate resources.
We start with the MRR from the previous month. This is our basis that we add the expansion and subtract the downgrades and churns to make our predictions. Monthly Recurring Revenue explained more in this article.
These are what increase our recurring revenue. We’re talking about new customers and upgrades from existing customers. These are the 2 ways SaaS companies increase top line revenue to fuel growth.
When customers downgrade to a less expensive service, this reduces our income. Customers that leave completely are what we consider churn.
A customer in a subscription based model exists for that period or they do not. This allows our models some consistency throughout the month. Because you may be making assumptions about expansion revenue, downgrades, and churn, you can run various scenario modeling or a Monte Carlo Analysis to get a range of expected values for the future.
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