The Value of CMRR: What CFOs Should Know

We’ve previously discussed the crucial metrics CFOs should know — now it’s time to tackle the specific applications of these metrics, focusing primarily on CMRR.

MRR vs. CMRR: Which One Should You Use?

As important as MRR is for measuring your predictable revenue streams, it won’t be able to give you the clear, long-term forecast that CMRR can. This is because CMRR also accounts for expected churn during the tracking period, whereas with MRR, you won’t have insight into anticipated cancellations or upgrades and downgrades, instead only being able to observe the company’s gross revenue. For instance, if you have a high churn rate, relying on MRR alone can give you a rather unpleasant surprise upon review. You’ll want to make sure that you’re moving your MRR/ARR towards the net positive, and CMRR is a valuable tool for determining this.

Moreover, CMRR is not only useful for your company internally — banks also use these figures as a baseline for how much credit to lend at certain time periods. Not to mention, that your CMRR is what investors would be looking into when gauging your company’s potential for long-term expansion.

CMRR can be calculated using this formula: 

Existing MRR + Signed Contracts Expected Churn = CMRR

The CMRR calculation can be further broken down to the following components:

  • Guaranteed Recurring Revenue Portion of the New MRR – the known recurring revenue portion becoming a part of the recognized recurring revenue stream
  • Guaranteed Recurring Revenue Portion of Expansion MRR – the expected contracted upgrade of a subscription after a certain period of time
  • Guaranteed Recurring Revenue Portion of Contraction MRR – the expected downgrade of a subscription leading to imminent churn 

Suppose that today is September 15th and you’ve already determined your recognized MRR for August, with your known upgrades, downgrades, and new subscriptions for the past month already accounted for. Let’s say your August MRR is $700K. During this specific period, you’ve started receiving new mid-cycle bookings, cancellation requests, etc.

Your CMRR will be computed as an extension of your recognized MRR in August, and will include the new subscriptions, upgrades and downgrades, and cancellations that have yet to flow into your revenue stream, giving you real-time figures and a more precise income projection. The same concept applies if you’re selling annual contracts, the only difference being that you use your ARR as the basis. 

Here’s a visual representation of the comparison of MRR and CMRR from ChartMogul:

Contracted MRR vs. Committed MRR: Are They Different?

The terms Contracted MRR and Committed MRR are almost identical and are often used interchangeably, only having a slight difference if applied to term-based subscription businesses. 

In the case of term-based subscription businesses, the contracted MRR includes only the contractually guaranteed revenues computed from the recognized revenue derived from new bookings until their terms end. The non-recurring revenues would be excluded from the contracted or committed revenue. For example, imagine a customer subscribes to wireless broadband services for $49.99 per month, with a one-time installation fee of $20. The guaranteed portion of the recurring revenue is $49.99 monthly, while the one-time charges of $20 won’t be included in the CMRR.

Final Thoughts

Tracking your CMRR helps lay the foundation for growth as it gives you accurate insights into the real financial standing of your business. It helps you improve your cash flow alignment, saves you time in managing your recurring revenues, and keeps your business on the right track as it scales. 

 

Photography by Chris Liverani via Unsplash

Privacy Notice

This privacy notice discloses the privacy practices for (www.ascentconf.com). This privacy notice applies solely to information collected by this website. It will notify you of the following:

  • What personally identifiable information is collected from you through the website, how it is used and with whom it may be shared.
  • What choices are available to you regarding the use of your data.
  • The security procedures in place to protect the misuse of your information.
  • How you can correct any inaccuracies in the information.

Information Collection, Use, and Sharing

We are the sole owners of the information collected on this site. We only have access to/collect information that you voluntarily give us via email or other direct contact from you. We will not sell or rent this information to anyone.

We will use your information to respond to you, regarding the reason you contacted us. We will not share your information with any third party outside of our organization, other than as necessary to fulfill your request, e.g. to ship an order.

Unless you ask us not to, we may contact you via email in the future to tell you about specials, new products or services, or changes to this privacy policy.

Your Access to and Control Over Information

You may opt out of any future contacts from us at any time. You can do the following at any time by contacting us via the email address or phone number given on our website:

  • See what data we have about you, if any.
  • Change/correct any data we have about you.
  • Have us delete any data we have about you.
  • Express any concern you have about our use of your data.

Security

We take precautions to protect your information. When you submit sensitive information via the website, your information is protected both online and offline.

Wherever we collect sensitive information (such as credit card data), that information is encrypted and transmitted to us in a secure way. You can verify this by looking for a lock icon in the address bar and looking for “https” at the beginning of the address of the Web page.

While we use encryption to protect sensitive information transmitted online, we also protect your information offline. Only employees who need the information to perform a specific job (for example, billing or customer service) are granted access to personally identifiable information. The computers/servers in which we store personally identifiable information are kept in a secure environment.

If you feel that we are not abiding by this privacy policy, you should contact us immediately via telephone at 202-256-9707 or [email protected].