3 Ways Technology Can Help You Grow Committed Monthly Recurring Revenue
Committed Monthly Recurring Revenue (CMRR) is a key metric used in the Software-as-a-Service (SaaS) industry to measure the predictable and recurring revenue that the company can expect from its customers every month. CMRR can help predict a company’s revenue growth potential — which, to some stakeholders, is more important than the company’s current revenues. For example, investors and potential buyers pay close attention to CMRR, meaning you should too.
Here we help define CMRR, why it matters, and three crucial ways technology can help you grow committed monthly recurring revenue.
Why is CMRR important for SaaS companies?
CMMR represents the total value of recurring revenue that customers have committed for the upcoming month or period — through contracts, subscriptions, or usage-based agreements. By focusing on growing their CMRR, SaaS companies can build a solid foundation for sustainable growth, improve customer retention rates, and increase their valuation over time.
CMRR considers the predictable and recurring nature of revenue from existing customers. This predictability makes CMRR a more reliable indicator of your company’s future financial performance. And again, future financial performance is perhaps the most exciting metric to investors and stakeholders.
How is CMRR different from MRR?
In short, MRR (Monthly Recurring Revenue) represents the current state of your SaaS company’s recurring revenue, while CMRR considers future revenue changes due to customer behavior.
MRR represents the total recurring revenue that your company generates monthly without considering any changes caused by customer churn, upgrades, or downgrades. For example, if you have 100 customers, each paying $50 per month, your MRR is $5,000.
On the other hand, CMRR represents the total amount of recurring revenue you can expect to generate every month, taking into account changes in revenue due to customer churn, upgrades, and downgrades. For example, if you have 100 customers each paying $50 per month, but five customers are expected to churn next month, and three customers are expected to upgrade to a higher-tier plan, your CMRR is $4,400 ([100 – 5 + 3] x $50).
The formula for calculating CMRR is: Total revenue per customer x Total number of active customers, adjusted for changes in revenue due to customer behavior. That whole “adjusted for changes” part is where technology can help by filling in the blanks.
Three ways you can reliably and sustainably grow CMRR
Given its critical importance in your SaaS company’s financial future, what can you do to increase CMRR? Technology is key in helping SaaS companies identify and capitalize on growth opportunities. Here are three ways technology can help your SaaS company grow its CMRR.
1. Technology can automate customer workflows
Technology makes it easier than ever to automate customer workflows. And automation saves you time and effort, reduces the risk of errors, and speeds up the order-to-cash cycle—which can all accelerate the growth of CMRR. For example, automated billing workflows can provide valuable insights into customer behavior and preferences, which will help you identify opportunities to increase CMRR. Some of the customer workflows you can automate include:
- Billing and invoicing: Including sending invoices automatically to customers and processing payments electronically.
- Renewals: Automate the renewal and upgrade process for existing customers, such as sending automated reminders when a subscription is about to expire.
- Revenue recognition and compliance: Streamline complex revenue recognition tasks and ensure compliance with accounting mandates such as ASC-606 and IFRS-15.
2. Technology provides a data-driven approach to forecast growth
Technology can help your SaaS company implement a data-driven approach to forecasting growth—and increasing CMRR—by leveraging its data and analytics capabilities. Here are some of the forecasting tasks the right technology can streamline.
- Identify key metrics: Determine the metrics that are most important for your business, such as Monthly Recurring Revenue (MRR), Customer Acquisition Cost (CAC), Churn rate, Customer Lifetime Value (CLTV), and others.
- Collect and analyze data: Collect data on the identified metrics and analyze them to understand the trends and patterns. For example, visualizations and dashboards combine revenue data for clear and straightforward analysis.
- Create forecasts: Based on the historical data and trends, create forecasts for the key metrics. Use techniques like regression analysis or time-series analysis to create accurate forecasts.
- Test and refine the forecasts: Continuously monitor the actual results against the forecasts and refine the forecasts as needed based on new data or changes in the business environment.
3. Technology delivers easy access to the metrics that matter
Technology allows you to use a data-driven approach to forecasting growth by facilitating the analysis of historical data, providing access to predictive analytics, monitoring KPIs, and using scenario or what-if planning. Among the ways the right tech can help are:
- Analyzing historical data: Use historical data to identify patterns and trends in customer behavior, such as changes in customer acquisition rates, retention rates, and customer lifetime value. Use this data to make more accurate predictions about future growth and adjust your strategies accordingly.
- Using predictive analytics: Predictive analytics can help forecast future growth by using data models to identify patterns and predict future outcomes. For example, you can use predictive analytics to identify which customers are most likely to churn and take proactive measures to retain those customers.
- Monitoring key performance indicators (KPIs): Use KPIs such as CMRR, customer acquisition cost (CAC), and customer lifetime value (CLTV) to monitor growth and adjust strategies. Setting goals for these KPIs and regularly monitoring progress can ensure you’re on track to achieve your growth targets.
- Creating scenario planning: Scenario planning involves creating different scenarios or “what-if” analyses to identify potential risks and opportunities. For example, you can use scenario planning to evaluate the impact of pricing strategies, customer segments, or market conditions on your growth forecasts.
What is the right technology for SaaS companies?
We’ve outlined three ways technology can help your SaaS company grow its CMRR, but what technology are we referring to?
While simple productivity tools like spreadsheets can help, you’ll need financial management software designed for the SaaS industry to achieve measurable and sustainable results. Sage Intacct is the tool of choice for many SaaS companies. It’s a best-in-class application that provides SaaS companies with tools and insights that power their growth and financial success. Learn more by reaching out to one of our Sage Intacct SaaS-industry specialists.