CMRR and CARR

If you’re running a SaaS company, you’ll already be aware of the importance of tracking metrics like monthly recurring revenue (MRR) and annual recurring revenue (ARR).

But, there are two other financial metrics that you should be paying close attention to: contracted monthly recurring revenue (CMRR) and contracted annual recurring revenue (CARR).

Contracted (also known as committed) monthly recurring revenue (CMRR) is a forward-looking financial metric that combines actual monthly recurring revenue (MRR) data with known bookings and churn data.

In simpler terms, CMRR is the value of the recurring portion of subscription revenue.

For term-based subscription companies, CMRR includes all the recurring subscription fees captured in each customer’s contract. For monthly subscription businesses without a term-based contract, the CMRR is the baseline value of the service provided.

On the flip side, CARR uses annual data instead of monthly to track recurring subscription revenue. This metric calculates the subscription revenue of a given period, shown as an annual run rate for all contracts including those that were signed in the same period.

The CMRR formula is quite simple. All you have to do is take your existing monthly recurring revenue (MRR) plus new business bookings that haven’t translated into actual revenue yet, plus expansion bookings, minus known downgrades and churn.

The CMRR formula looks like this:

CMRR = MRR + New business bookings + Expansion bookings - Downgrades - Churn

Let’s take a look at this formula in action.

Say your business has an existing MRR of $10,000, with $2,000 in new business bookings and $1,000 in expansion bookings.

However, you also have $500 in known downgrades and $1,500 in churn. That leaves you with a CMMR of $11,000.

The CARR formula uses the same concept but in annual terms. To use the CARR formula, you need simply need to add the step of multiplying the existing MRR by 12 to make it annual.

When it comes to calculating subscription revenue, MRR is a commonly used metric. However, it doesn’t take into account anticipated churn, upgrades, and downgrades, which can give an incomplete picture of a company’s financial standing.

This is where CMRR comes in, as it factors in these potential changes and provides a more accurate forecast of future revenue.

Companies looking to gain a more complete picture of their monthly revenue can opt for CMRR instead of MRR to evaluate their financial standing and forecast revenue.

Similarly, CARR differs from ARR in two main ways. CARR includes the ARR of new customers who are not yet onboarded, which is important because the time it takes to get a customer active can vary and is not entirely within the company’s control.

By including anticipated revenues from new customers, CARR provides a more accurate picture of a company’s growth potential and revenue trajectory.