With the sprouting of numerous Software-as-a-service(SaaS) companies sprouting in the business, I sensed the need to put together a list of SaaS acronyms and keywords to help the new business owners take their first stride. I call this- “The SaaS glossary 101” which is to-the-point and easy to understand.
In this list, you’ll find a set of metrics to keep you updated with your business basics and jargons that you can add to your SaaS vocabulary. Let’s look at them in the alphabetical order:
Annual Recurring Revenue (ARR)
ARR is the value of recurring subscription revenue that a business will recognize in a calendar year. It is also equal to monthly recurring revenue (MRR) multiplied by 12.
Annual Run Rate Revenue (ARRR)
ARRR is ARR plus additional revenue that is not attributed to a recurring subscription. This could include professional services or implementation fees.
Average Revenue Per User (ARPU)
ARPU is the average revenue recognized per user, per month.
Average Selling Price (ASP)
The average price that your product or service is sold for, per month, a year or another measurement. Ideally, cost to acquire a customer should not exceed ASP.
Bookings are the dollar value of contracts in a specified period of time, including both subscription and non-subscription revenue.
Burn rate is the rate per month that a company spends its cash (often venture capital) as it grows before generating profit.
Customer Acquisition Cost (CAC)
CAC is the dollar amount spent acquiring customers (marketing and business development cost) divided by the number of customers acquired over a particular period of time. This cost can also be further broken down by the desired marketing channel.
Churn is the rate at which customers cancel their subscriptions.
Customer Lifetime Value (CLTV or CLV)
Value of the recurring profit stream over a customer’s lifetime minus customer acquisition cost.
Committed Monthly Recurring Revenue
Projection of MRR into the future accounting for anticipated account expansion and churn.
Contracted Monthly Recurring Revenue
MRR that is contractually guaranteed.
A group of customers that signed up around the same time or took part in the same onboarding group.
Customer Retention Cost
Expenses derived from retaining customers such as the renewals team, professional services team, customer marketing, and other costs.
Customer Retention Rate
How many customers are retained from the beginning to the end of the period, not including new customers.
Revenue and cash are not the same. Cash can be obtained upfront but it does not qualify as revenue until it has been earned.
The technical definition of Dunning is “to make insistent demands for the payment of a debt.” (Investopedia) In the context of SaaS, it may often refer to emails being sent to a user when their payment has expired.
Also known as “Customer Churn”. Churn calculated based on customer name/company — regardless of deal size.
Monthly Recurring Revenue (MRR)
Total amount of subscription revenue expected from customers every month excluding any additional, non-recurring payments such as implementation fees or professional services fees.
Churn as measured by monthly recurring revenue lost, regardless of a number of companies lost as customers.
New contracts, renewals, upgrades, refunds and other changes to subscriptions that impact total bookings — bookings are all items with an impact on revenue.
Contracts changed so that they are similar enough to be measured against one another; for example, by assigning an average MRR to a contract paid annually to compare it to a contract paid monthly.
The process that new customers go through when they are becoming customers.
Assisting customers with best practices and strategies on how to run their business, beyond product training.
Bookings from previously existing contracts.
A rate of customer retention.
Unrecognized revenue that will become recognized over the term of the contract.
Churn measured by dollar amount of contracts lost.
Revenue becomes recognized from a contract only once it has been earned, whether or not it has been paid in advance.
Months of the runway are how many months of cash the company has to operate at the current burn rate.