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December 31, 2021

There are many confusing saas acronym, especially for those who don’t work with cloud technologies. It’s essential to understand what each saas acronym means and how it applies to your strategy or when you’re purchasing services from providers.

The following SaaS acronyms and terms are also common in other fields, but they make sense when dealing with SaaS. The dictionary will help users better understand cloud technology which many believe is the future of computing.

 

 

1. ARR: Annual Recurring Revenue

ARR is the subscription revenue over 12 months. It’s calculated as recurring monthly revenue multiplied by twelve.

ARRR: Annual Run Rate Revenue

The ARRR is equal to the company’s total revenue plus any money from recurring subscriptions unrelated to deployment fees, training, or other professional services.

 

2. ARPU: Average Revenue Per User

This is the average revenue generated per user or ARPU. It’s a simple calculation that can be done by dividing total monthly payments by the number of active users at any given time.

 

3. ASP: Average selling price

When I was calculating my CAC, it didn’t consider the average cost of a subscription per month. This is because subscriptions have different lengths and prices, so to get an accurate number for how much revenue you would need to make up your customer acquisition cost, multiply by 12.

Bookings

The number of contracts signed during a specific period is measured in dollar value and includes subscription-based and non-subscription revenue.

 

4. BR: Burn Rate

Burn rate is the monthly cost of a new service provider before turning a profit. Click To Tweet

It helps assess how long a company will have enough capital to operate at total capacity and generate positive cash flows. There are two types of burn rates: gross, all expenses over an allotted period, net when companies spend more than they earn.

 

5. CAC: Customer Acquisition Cost

Marketing costs are the sum of money spent on business development and marketing. The cost covers various efforts, including advertising, public relations, promotion, etc.

CR is the percentage of customers that discontinue service with a company over time. It’s essential to know CR because it determines how much money companies spend on customer acquisition versus retention.

If you offer recurring subscriptions, monitoring the cancellation rate is essential. This is an indicator of business performance and shows how many clients customers are canceling or not renewing their subscription during a period. If this number starts getting too high, then your provider might be in trouble because they can’t recoup what’s known as CAC (Customer Acquisition Cost).

A churn rate is calculated by determining the number of customers that come and go in a specific period. There isn’t any one formula for calculating this, but you can use (churn rate = total acquired – lost)total at the end).

 

6. CLV: Customer Lifetime Value

CLTV is the amount of money that a customer will spend over their lifetime minus how much it cost to get them.

In a subscription-based business, it is essential to ensure that the company has enough customers. Customers will be more likely to sign up for an ongoing service if they know there are no contracts or obligations and only pay month by month.

CMRR is a forecast of MRR. Essentially, you’re trying to predict the business’s future performance, which is best done via multiple scenarios—good (high growth), harmful (poor growth, high churn), and neutral.

Monthly recurring revenue is the best way to measure long-term success.

When it comes to monthly recurring revenue, committed MRR is the sum of all paid subscriptions, and contracted MRR only includes what has been promised in a contract. They are often used interchangeably.

Cohorts

SaaS cohorts are groups of customers who all signed up around the same time or were part of a specific onboarding group.

 

7. CRC: Customer Retention Cost

The costs of keeping your customers are not just about how much you spend on marketing. There is also the cost of retaining existing customers, including renewal fees and other service charges.

 

8. CRR: Customer Retention Rate

This metric is the percentage of customers that stay with a company and does not include any new business.

Deferred Revenue

Deferred revenue is not the same as cash because it has not been recognized yet.  Instead, deferred revenue is collected and recorded on a balance sheet account but doesn’t show up in your profit-and-loss statement until that point in time.

It’s a liability because you have received the money but haven’t delivered all of your services. If customers ask for refunds after providers collect and spend their collected money, it’s not as big an issue if only one or two people are involved; things can get ugly when large numbers of people want to back out.

Dunning

Dunning is essentially a series of phone calls and emails to make sure that debt payments are made in the SaaS world.

 

9. MRR: Monthly Recurring Revenue

The business of SaaS is primarily based on monthly subscriptions. MRR, or Monthly Recurring Revenue, refers to the total revenue generated from subscribers per month and does not include non-recurring payments such as training fees.

To calculate MRR, you can multiply ARPA (average revenue per account) with the total number of subscribers. This ratio has three different aspects: New MRR is calculated by multiplying ARPA and new customers; Expansion MRR estimates average revenues generated from existing accounts who have upgraded their subscription plan or renewed an old one; Churn refers to lost revenue due to customer cancellations.

MRR Growth

To calculate MRR growth, you need to look at the new revenue generated by subscriptions and account for expansion. Expansion is an increase in subscription size (in terms of seats) or a change from monthly to annual billing.

MRR Churn

MRR Churn is the monthly revenue lost to churn. It’s calculated by taking your customer count and subtracting it from your MRR (monthly recurring payment).

New Bookings

The name “new bookings” is a little misleading because it can also include contracts, upgrades, and other changes that impact revenue or total bookings.

Normalized Contracts

Normalizing contracts is the process of putting them into perspective by assigning either ARR (annual recurring revenue) or MRR to a contract element. For example, posting an average MRR to a yearly contract makes it easier for providers to compare that against monthly agreements.

Onboarding

Like other professions, there is a process of establishing the tone for relationships with customers. It refers to how subscribers have to go through an initial operation at the beginning of their journey with providers.

Professional services

Beyond just recurring subscriptions, providers also offer professional services such as training and deployment.

Professional services are not always paid for but can include assisting customers in running their business. Click To Tweet

For any company, the most critical metric is the renewal rate. This can be seen as a reflection of customer satisfaction, and it’s crucial to ensure that these rates are increasing every year.

Renewal bookings refer to the booking from existing contracts, while renewal rate is another term for customer retention and refers to how many customers are retained.

Revenue Backlog

The revenue backlog will be recognized over time and not all at once.

Revenue Churn

Revenue churn is the amount of lost revenue that usually gets reported annually. However, it can also be tracked by category (e.g., RC-cancellations and RD-downgrades).

Revenue Recognition

In accounting, the term “revenue recognition” is a general principle that states revenue should only be recorded when earned. Software as a service trade means recognizing any money made from contracts and subscriptions paid in advance.

Runway

The runway is the number of months a company can operate at its current burn rate. Burn Rate refers to how much money it loses in any month before finally turning profitable.

 

10. TCV: Total Contract Value

TCV is the total contract value that takes into account all one-time and recurring charges, as well as usage charges. It helps project how much booking revenue you will have over a given period, plan for expenditures or manage business growth. TCV can differ from your actual invoice amount because it only refers to committed contracted values calculated based on specific terms like expiration dates.

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