Tech Glossary: a language of its own

Normalized annual recurring revenue. Equals MRR multiplied by 12. Primarily used to communicate with investors.

ARR = MRR × 12

Average revenue per customer account. Key metric to understand your customer value and optimize pricing.

ARPA = MRR ÷ Number of active customers

Speed at which your company spends its cash. Critical for anticipating your financing needs.

Burn Rate = (Beginning cash - Ending cash) ÷ Number of months

Cost to acquire a new customer. Includes all marketing and sales costs divided by number of new customers acquired.

CAC = (Marketing Costs + Sales Costs) ÷ New customers

Time needed to recover the customer acquisition investment through their recurring revenue.

CAC Payback = CAC ÷ (ARPA × Gross margin)

Percentage of customers who cancel their subscription over a given period. High churn indicates retention problems.

Churn Rate = (Lost customers ÷ Customers at beginning) × 100

Revenue lost due to subscription cancellations. Negative MRR component to minimize absolutely.

Churned MRR = MRR from canceled customers

Analysis method that groups users by acquisition period to track their behavior over time.

Additional revenue generated by existing customers (upsells, cross-sells). Indicates ability to monetize installed base.

Expansion MRR = Additional revenue from upgrades

Percentage of revenue remaining after deducting direct costs (servers, support, etc.). Crucial for evaluating profitability.

Gross margin = ((Revenue - Direct costs) ÷ Revenue) × 100

Percentage of customers (logos) lost, without considering their value. Different from Revenue Churn which weights by MRR.

Logo Churn = (Lost customers ÷ Total customers at beginning) × 100

Total value a customer generates throughout their lifetime with your product. Essential for evaluating CAC profitability.

LTV = ARPA × Customer lifetime (1 ÷ Churn Rate)

Predictable monthly recurring revenue. The #1 metric for measuring SaaS financial health.

MRR = Σ (Monthly revenue from each active subscription)

Revenue brought by new customers during the month. MRR component to measure growth through acquisition.

New MRR = Number of new customers × Average price

Percentage of revenue retained from existing customers, including upsells and downgrades. The favorite KPI of SaaS investors.

NRR = ((Beginning MRR + Expansion - Contraction - Churned) ÷ Beginning MRR) × 100

Growth strategy where the product itself is the main driver of acquisition, conversion and expansion. Typical: freemium or free trial.

Measures growth efficiency by comparing revenue gained vs lost. A ratio > 4 is excellent.

Quick Ratio = (New MRR + Expansion MRR) ÷ (Churned MRR + Contraction MRR)

Benchmark combining growth and profitability. A healthy SaaS should have: Growth rate + EBITDA margin ≥ 40%.

Rule of 40 = ARR growth rate + EBITDA margin

Number of months remaining before cash depletion at current burn rate. Crucial for anticipating fundraising.

Runway = Current cash ÷ Monthly burn rate

Profitability generated per unit (customer). Evaluates whether your economic model is viable by comparing LTV and CAC.

Ideal LTV:CAC ratio ≥ 3:1