SaaSFlow

Metric

MRR

MRR (Monthly Recurring Revenue) is the predictable revenue a business receives every month from subscription-based customers. It's one of the most important metrics for SaaS (Software as a Service) businesses as it represents the stable, recurring income stream.

What is MRR?

MRR is calculated by summing up all the monthly subscription fees from active customers. It provides a clear picture of a company's predictable revenue and is essential for forecasting, growth planning, and investor reporting.

$$\text{MRR} = \sum(\text{Monthly subscription fee} \times \text{Number of customers})$$

Why MRR matters

MRR is crucial for SaaS businesses because it:

  • Predicts future revenue: Unlike one-time sales, MRR provides visibility into future income
  • Measures growth: Tracking MRR over time shows whether the business is growing, stagnating, or declining
  • Enables planning: With predictable revenue, businesses can better plan expenses, hiring, and investments
  • Attracts investors: Investors use MRR to evaluate the health and potential of SaaS companies

MRR only includes recurring subscription revenue. One-time fees, setup fees, or non-recurring charges should not be included in the MRR calculation, as they don't represent predictable monthly income.

MRR vs CMRR

CMRR (Committed Monthly Recurring Revenue) is a forward-looking metric that extends beyond current MRR by including future committed revenue from signed contracts that haven't started yet.

$$\text{CMRR} = \text{Current MRR} + \text{Future committed MRR}$$

MRR represents the revenue you're currently receiving from active subscriptions. It's a snapshot of your present recurring revenue.

CMRR, on the other hand, includes:

  • Current MRR from active customers
  • Future MRR from contracts that have been signed but haven't started yet
  • Committed revenue from customers who have upgraded or extended their contracts

Handling churn

One key difference between MRR and CMRR is how they handle churn:

  • MRR counts churn only when the active subscription period is over. A customer who has notified you they won't renew will still be counted in MRR until their current billing period ends.

  • CMRR counts churn as soon as it becomes known. If a customer has notified you they won't renew, CMRR immediately reflects this loss, even if their current subscription period hasn't ended yet.

This makes CMRR more forward-looking and accurate for forecasting, as it reflects known changes to future revenue immediately, while MRR maintains a more conservative view that only reflects actual revenue changes as they occur.

CMRR is particularly useful for:

  • Forecasting: Provides a more complete picture of future revenue
  • Sales pipeline: Shows the impact of signed deals that haven't gone live
  • Investor reporting: Demonstrates committed future revenue beyond current subscriptions

While MRR shows what you're earning now, CMRR shows what you're committed to earning in the future, making it a valuable metric for planning and growth projections.