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Key Business Metrics Series: Recurring Revenue

May 3, 2016 Finance

This is the first in a series of articles over the next few months discussing key business metrics relevant to the Software as a Service (SaaS) industry. Each article in the series will briefly explore a different relevant SaaS key metric including the definition, the applicable business context and its use. The focus for this article is CMRR.

  • Definition: CMRR refers to Committed Monthly Recurring Revenue. Revenue is typically considered “committed” when a customer has signed a contract with minimum access fees over a specified term. To calculate CMRR, the minimum total fee per the contract is divided by the term in months.
  • Applicable business context: CMRR is often useful to SaaS companies serving enterprise class customers, where customer on-boarding costs can be significant and the volume of platform usage is difficult to predict. In these situations, the business model typically includes longer term contracts with a minimum fee component combined with usage-based fees over a certain usage limit.
  • Use: CMRR reporting, when trended over several quarters and combined with actual vs. minimum usage, provides management insight into future revenue stream opportunities and risks. If designed correctly, the CMRR report identifies up-sell opportunities (e.g. which customers would benefit from an increased minimum usage limit) and at-risk revenue streams (e.g. which customers are under-utilizing the solution and, if not addressed, might become next period’s “churn”).

If the scale of your business is outpacing your processes, causing growing pains, regular fire-drills, and missed opportunities, The Fahrenheit Group has professionals who can help. We understand your industry and your challenges, and we are experienced in working closely with management to drive your business to the next level of success. If your organization needs help, don’t hesitate to contact us.


 

Jonathan Kelly transparentJonathan Kelley is a Fahrenheit professional within our Finance and Advisory practices. He is a versatile finance professional specializing in providing finance and operations leadership to SaaS / PaaS, enterprise software and professional services clients. He can be contacted at d: 919-891-0155 e-mail: jkelley@fahrenheitadvisors.com

 

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