SaaSology - Words you want to know

ARR (Annual Recurring Revenue)

ARR stands for Annual Recurring Revenue, which actually represents the total value of the contracted recurring revenue components of your subscriptions over a one-year period. This is B2B subscription business specific term, being less used than MRR. The reason for this is that ARR is usually used as metric by B2B subscription businesses that offer multi-year agreements.

ACV (Annual Contract Value)

ACV, short for Annual Contract Value, is used as a metric to calculate the average yearly value per customer contract. It does not refer to one time fees. It doesn’t bring a lot of value when standing on its own. It can, however, prove to be very useful when compared with Customer Acquisition cost, as it shows when can the customer acquiring cost can be recovered.

ACL ( Average Contract Length)

ACL short for Average Contract Length represents the average duration of all customer contracts. To calculate the Average Contract Length, all committed contracts are added up in months( monthly plans are considered to each represent 1 month) and then, divided by the total number of contracts.

ARPU (Average Revenue Per User)

ARPU, short for Average Revenue per User, represents the revenue generated by each active customer. ARPU is easily calculated by dividing your MRR to the total number of active users within that month.

ASP (Average Selling Price)

ASP, short for Average Selling Price, represents the price of your product. In the SaaS world, this can be calculated by dividing MRR to the number of customers acquired within that time frame.

Application Integration

Application Integration refers to the actual process of implementing a new solution and integrating other existing solution with the new one. It has often been described as messy and complicated, which is why clients usually receive support throughout the application integration process.

Acquisition Channel

The Acquisition Channel is the route your customer is taking to get to your websites. Acquisition channels take plenty of forms and these can be organic, paid, referral, direct or email.

Billings

Billing is the actual amount, previously invoiced, that is due for payment shortly. This is an important metric in the SaaS world, as it displays the amount of money you are making in a specific period and it shows how your business is doing.

Burn Rate

The Burn rate allows you to understand how quickly cash holdings are decreasing. There is Gross Burn Rate and Net Burn Rate. Gross Burn Rate shows the amount of cash that has been spent each month, where the Net Burn Rate displays the difference between cash out and cash in. To have a profitable business, you need a negative burn rate.

Bookings

A booking is when a customer agrees to commit to your services, without the need of signing a contract. Usually, bookings are short-term commitments, which is why there is no need for a contract.

Break-even

The Break-even point is when expenses are equal with revenue. No loss or gain has been made, opportunity costs have been paid and capital returned. From this moment on, the business can start producing a profit.

CAC – Customer Acquisition Cost

By means of CAC, short for Customer Acquisition Cost, you will be able to determine if what you are paying to gather customers is above or under what you are gaining. If acquiring a customer costs you $10 and your monthly subscription plan is $5, then your business is not looking good.

CAC Payback Period

CAC Payback Period represents the amount of time necessary to recover the investments made for acquiring customers. It shows you your breakeven point. CAC Cashback Period is calculated by dividing the customer acquisition cost to average revenue per account by gross margin percent.

Cash Flow

Cash Flow represents the net amount of cash transferred in and out of a business.

Churn

The term churn actually refers to the number of customers/subscribers who stop using your service over a given period of time. Annual Churn is the percentage rate at which you are actually losing subscribers.

Churn MRR

Churn MRR represents the amount of monthly recurring revenue which has been lost as a result of customer cancellations. Because it is simpler to handle, Churn MRR usually comes in the form of a percentage. To obtain that percentage, Churn MRR ( the sum of the MRR of all lost subscribers) is divided by the MRR for a given period.

CLV ( Customer Lifetime Value)

CLV, short for Customer Lifetime Value actually predicts the net profit brought by the future relationships established with a customer.

CMRR (Committed Monthly Recurring Revenue)

CMRR, short for Committed Monthly Recurring Revenue, combines recognized, monthly recurring revenue with churn, bookings, downgrades, and upgrades. From this calculation, fees are generally excluded.

CMRR (Contracted Monthly Recurring Revenue)

CMRR, short for Contracted Monthly Recurring Revenue, represents the total value of the contracted recurring portion of subscription revenue.

COGs – Cost of Goods Sold

COGS, short for Cost of goods sold, represents the costs of production of the products/services sold by the company in question. In the case of SaaS, COGS can be used to measure the costs of labor. COGS excludes other expenses such as those related to distribution or sales force.

Cohort

A cohort is a group of users that share the same characteristics.

CRO (Conversion Rate Optimization)

CRO, short for Conversion Rate Optimization is the process of constantly improving your website or landing page capacity of driving more traffic and converting visitors into buyers.

CPC (Cost Per Click)

CPC, short for Cost per Click, is the cost of every click received from each individual as a result of a paid marketing campaign. It is generally used to measure the success of paid marketing campaigns.

Customer Success

Customer success refers to the department part of your business that is focused on fulfilling all customer requests, offering support in all areas related to your product/service. The goal is to achieve a highly satisfying customer experience.

CRC: Customer Retention Cost

CRC, short for Customer Retention Rate, is a metric used to obtain the overall cost of keeping the existing customer on-board. The method through which one calculates CRC depends on each company.

CRR (Customer Retention Rate)

CRR, short for customer retention rate is the percentage of customer you manage to keep on board, considering a certain period. This percentage does not include new customers.

Cloud Computing

Cloud computing is the actual delivery of computing services, which refer to servers, databases, networking, software, intelligence, analytics and so on, through the use of the Internet, also known as the cloud. Cloud computing is generally regarded as a fast and flexible service, encouraging innovation.

Consumption-Based Pricing Model

The Consumption-based pricing model rests on the idea that customers pay according to the amounts of services they have actually used. This type of pricing model is used in the IT industry, specifically in the distribution of cloud computing services.

Customer Lifecycle

Customer Lifecycle actually refers to the steps a customer makes in the processes of buying a product. In the customer lifecycle, the customer goes through 4 phases: considering the product, purchasing it, using it and ultimately, maintaining loyalty.

CTA (Call to Action)

A Call to Action is a term generally used in marketing and it refers to a group of words or phrases that can be used in sales scripts, promotional messages or web pages to encourage customers to make a purchase or to act immediately.

DAU (Daily Active Users)

DAU, short for Daily Active Users is a way of calculating the success of an internet product. This metric is used to measure how many visitors have visited/interacted with the product in question on a specific day.

Deferred Revenue

Deferred Revenue refers to the advanced payment a customer makes to a company for a product/service that has yet to be delivered. Deferred revenue is also known as unearned revenue.

Dunning

Dunning is a term that refers to making demands for the payment of a debt. This also refers to the collection process.

Days to Break-Even

Days to Break-Even is a term that refers to the number of days necessary to reach the break-even point.

Free Trial

Free trial refers to the distribution of a product to customers, free of charge, over a set period of time in order to be tested and verified. The goal is a future purchase.

Freemium

Freemium is actually a pricing strategy in which a software can be accessed by users free of charge, but certain advanced featured need to be paid in order to be used.

Growth Rate

The growth rate is the method to measure a company’s growth in revenue and its potential to expand over a set period.

Gross Margin

Gross margin is revenue left after subtracting the COGS. It is generally expressed as a percentage of the total revenue.

Go-To-Market (GTM) Strategy

The Go-To-Market (GTM) Strategy is the plan an organization/company develops, using all resources, internal and external, to ensure that their message reaches customers and they start selling.

Inbound Marketing

Inbound marketing is a technique by means of which you capture the attention of your audience, this generating leads/customers. Tactics such as social media marketing, SEO or content marketing are used in this process.

KPI (Key Performance Indicator)

KPI, short for Key Performance Indicator, is a metric used to demonstrate the level of effectiveness a company has at achieving their key business objectives.

Lead Generation

Lead generation refers to the process of attracting potential customers to your services, having as a goal their conversion to paying customers.

Lifetime Value

Lifetime Value is a predictive metric through which you can calculate the amount a customer will spend on your product/service throughout the entire relationship.

LVR (Lead Velocity Rate)

LVR, short for Lead Velocity Rate is used to measure the level of growth in qualified leads for one month as opposed to a previous one. By means of this metric, the business trajectory of a company can be predicted.

Loyalty Loop

The Loyalty loop is a concept used in customer service and illustrates the customer’s buying process, more specifically the nature of the product bought, and his intentions of making future purchases from the same company.

Marketing automation

Marketing automation represents the process through which a team sets up a robot to handle different small, time-consuming tasks. Marketing automation allows you to better understand the customer’s journey as well as improve overall lead conversion.

MVP (Minimum Viable Product)

MVP, short for Minimum Viable Product, is the version of a new product by means of which a team can collect feedback and information, understanding what needs to be changed in order to obtain the best possible results.

MRR (Monthly Recurring Revenue)

MRR, short for Monthly Recurring Revenue, is a metric used in SaaS and subscription companies to measure the entire recurring revenue throughout a set month.

MRR Churn

MRR Churn is a metric that allows companies to calculate the rate they are losing MRR by either cancellations or downgrades.

MRR Growth

MRR Growth comes in the form of a percentage and it is used to measure the growth in MRR from one month to another.

Multi-tenancy

Multi-tenancy is an architecture in which one software application runs on a server and serves multiple customers, also known as tenants. It can be very useful, economically speaking because it allows maintenance and development costs to be shared.

Net Revenue Retention Rat

The Net Revenue Retention Rate is a metric by means of which companies measure the total change in recurring revenue, looking at the same group of customers over a determined period of time. The current MRR from a group of people is divided by the company’s MRR recorded in the previous year, from the same group of people.

Net MRR Churn

Net MRR Churn Rate is a metric through which companies can measure revenue lost from one month to the next, due to either cancellations or downgrades, after considering revenue from existing customers by means of upgrades or expansion.

Onboarding

The term onboarding refers to the actual process of introducing a customer/employee to an application/system/solution.

Outbound Marketing

Outbound marketing is the method through which your customers are spreading the word about your product/service through TV ads and radio or the newspapers.

Omnichannel Approach

The Omnichannel approach represents a strategy in which a company decides to market its services across multiple channels to ensure better information spread. All channels used in this strategy need to collaborate and align perfectly in their efforts of marketing the services.

Product Lifecycle

The product lifecycle term refers to the stages a product goes through from the moment it is conceived and designed until its final disposal.

PPC – Pay Per Click

PPC marketing is a method through which you can create promotions and bid against certain keywords that best represent your business.

Product Market Fit

Product market fit represents the degree to which a product fits in with the demands of a market.

PQL (Product-Qualified Lead)

PQL, short for Product Qualified Lead, refers to a lead that has experienced a real value when using your product during the freemium or free trial model.

Retention Rate

The Retention Rate refers to the percentage of customers you have managed to retain throughout a set period of time.

Renewal Rate

The Renewal Rate is the percentage of customers who decided to renew their subscription.

Revenue Backlog

The term revenue backlog refers to the amount of contracted revenue that has yet to be recognized in your subscription agreement.

SaaS (Software as a Service)

SaaS, short for Software as a Service, is a software licensing and delivery on a subscription basis.

Subscription Billing Model

The Subscription Billing Model is a business model in which a customer has to pay for a subscription in order to have access to the product or service.

SaaS Revenue Recognition

SaaS Revenue Recognition is the process through which bookings are converted to revenue.

SLA (Service Level Agreement)

SLA, short for Service Level Agreement, is the minimal level of service agreed between a company and its customers, stipulated in their contracts.

Total Contract Value

Total Contract Value represents the total contract value, including both fees and recurring revenue for a period defined in the contract.

TTV (Time To Value)

TTV, short for Time to value, represents the necessary amount of time new customers need to realize value from your product.

Value Gap

Value Gap refers to the moment in which the expected value of a service/product is not reached by the customer when actually using the product.

Value-Based Pricing

Value-based Pricing is a pricing strategy in which the price is set considering the estimated value the product brings rather than considering product costs.

Valued (Golden) Features

Valued( Golden) features refer to those product capabilities that fill the value gap.