Key Performance Indicators (KPIs) for Software-as-a-Service (SaaS) Companies – COMMITTED MONTHLY RECURRING REVENUE
During their expansion stage, a lot of SaaS companies find themselves in a stage where the volume of their revenue and customers accounts put them far ahead of the new startup companies, but their financial infrastructure is far from being well established for successful scaling up and is far from being aligned with the company exit strategy. In previous blog posts I discussed Churn Rate and Monthly Recurring Revenue (MRR) for the expansion stage software companies, and more specifically, the ones that dwell in the SaaS space. In this blog post, I will discuss a KPI that presents a modified version of the MRR.
Today’s KPI is CMRR – Committed Monthly Recurring Revenue. According to Bessemer Venture Partners’ paper on the subject, the goal of this KPI is to show what a SaaS company’s revenue stream will be going forward if they virtually stop their sales and marketing effort. To get the steady state value of the CMRR, a company needs to consider the MRR, add all the purchase orders of future recurring revenue, and subtract the recurring revenue from customers that indicate that they will churn within the year.Now the challenge is to create and enforce a consistent definition of what Expected Churn is, as its meaning could be very subjective. If such definition is not created and enforced, the Expected Churn may be misrepresented and this will not be uncovered about couple of quarters later.Besides tracking the CMRR to understand a company’s performance, it can also be used as a measure to determine the end of year bonus for the CEO. However, Bessemer warns that CMRR is not a good indicator to determine the commissions for your sales team (farmers) since reporting accurate expected churn will actually be punished. Therefore, for your sales team’s commissions MRR is a better indicator.
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It’s not an easy decision, but most important ones in life aren’t.