Business Glossary
Clarify the metrics investors and operators use every week—recurring revenue, acquisition cost, retention, and margins—then open the matching calculators.
15 terms · Linked from popular calculators on the hub
Categories
MRR (Monthly Recurring Revenue)
SaaS revenueDefinition
Normalized monthly revenue from subscriptions. New MRR, expansion, contraction, and churn roll into net MRR growth.
Formula
MRR = Σ (active customers × monthly subscription price)Example
100 customers at $50/mo + 20 at $120/mo → MRR = $5,000 + $2,400 = **$7,400**.
Why it matters
MRR is the heartbeat metric for SaaS—ARR and growth rates derive from it.
Common mistakes
- ✗Mixing one-time revenue into MRR
- ✗Ignoring downgrades (contraction MRR)
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ARR (Annual Recurring Revenue)
SaaS revenueDefinition
Annualized view of recurring revenue—often MRR × 12 for pure monthly subscriptions.
Example
MRR **$40,000** → ARR ≈ **$480,000** (before annual prepay discounts or multi-year deals).
Why it matters
Boards and investors benchmark ARR; use the same definition consistently quarter to quarter.
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CAC (Customer Acquisition Cost)
Unit economicsDefinition
Average sales & marketing spend to win one new paying customer in a period.
Formula
CAC = (S&M spend in period) ÷ (new customers acquired)Example
Spend **$50,000** on S&M, add **25** customers → CAC = **$2,000**.
Why it matters
CAC must be compared to CLV and payback period—cheap traffic that never converts is not cheap CAC.
Common mistakes
- ✗Excluding salaries or agency fees
- ✗Dividing by leads instead of paying customers
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CLV / LTV (Customer Lifetime Value)
Unit economicsDefinition
Expected gross profit (or revenue) from a customer over their relationship with you.
Example
ARPU **$80/mo**, gross margin **80%**, average life **24 months** → revenue LTV ≈ **$1,920**; gross-profit LTV ≈ **$1,536**.
Why it matters
Healthy SaaS usually targets LTV:CAC of 3:1 or better with payback under 12–18 months.
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Churn (logo & revenue)
RetentionDefinition
Logo churn counts lost customers; revenue churn counts lost MRR (downgrades count as contraction). Net churn can be negative when expansion exceeds losses.
Example
Start month MRR **$100k**, lose **$8k**, expand **$5k** → net revenue churn **3%** for the month.
Why it matters
Small churn compounds—1% monthly logo churn ≈ 11.4% annual loss of the customer base.
Common mistakes
- ✗Comparing monthly % to annual % without converting
- ✗Ignoring expansion in net metrics
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NRR / NDR (Net Revenue Retention)
RetentionDefinition
Revenue retained from an existing cohort including expansion, divided by starting cohort revenue—values above 100% mean net expansion.
Formula
NRR = (Starting cohort MRR + expansion − contraction − churn) ÷ Starting cohort MRRExample
Cohort starts **$200k MRR**, ends **$230k** without new logos → NRR = **115%**.
Why it matters
Elite SaaS grows even with flat new sales when NRR > 100%.
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ARPU (Average Revenue Per User)
SaaS revenueDefinition
Mean recurring revenue per account or user in a period—MRR divided by active customers.
Example
MRR **$75,000** ÷ **1,500** customers → ARPU **$50**/month.
Why it matters
ARPU shifts with packaging, seat expansion, and mix—track it beside logo count.
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Gross margin
ProfitabilityDefinition
Revenue minus direct cost of delivering the product (COGS), expressed as a percent of revenue.
Formula
Gross margin % = (Revenue − COGS) ÷ Revenue × 100Example
Revenue **$200k**, COGS **$60k** → gross margin **70%**.
Why it matters
SaaS needs high gross margin to fund S&M and R&D—compare to industry norms (often 70%+).
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Contribution margin
ProfitabilityDefinition
Revenue minus variable costs (per unit or per customer)—shows what each sale contributes to fixed costs.
Example
Price **$100**, variable cost **$35** → contribution **$65** (65% margin).
Why it matters
Pricing and channel decisions should clear contribution margin, not just gross revenue.
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Break-even point
ProfitabilityDefinition
Sales volume where total revenue equals total fixed + variable costs—zero operating profit.
Why it matters
Tells you minimum MRR or units before the business funds itself excluding financing.
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EBITDA
ProfitabilityDefinition
Earnings before interest, taxes, depreciation, and amortization—a proxy for operating cash generation.
Why it matters
Used in valuations and lending; not a substitute for cash flow when capex is heavy.
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Unit economics
Unit economicsDefinition
Per-customer or per-order profitability: CAC, payback, LTV, and contribution together.
Why it matters
Scaling bad unit economics just burns cash faster—fix the unit before pouring budget into ads.
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Customer retention rate
RetentionDefinition
Share of customers who remain active between two dates—complement of logo churn.
Example
Start **1,000** customers, **920** remain → retention **92%** (logo churn **8%**).
Why it matters
Retention drives LTV more than acquisition tweaks for mature products.
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Pricing strategy
GrowthDefinition
How list price, packaging, and discounts map to value metrics (per seat, usage, or outcome).
Why it matters
Small price lifts flow straight to margin when churn is controlled.
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Cash flow projection
FinanceDefinition
Forecast of cash in vs out—timing matters as much as profit (payroll, tax, and collections).
Why it matters
Profitable SaaS can still fail if collections lag and burn is front-loaded.
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