SaaS Glossary
The technical terms every SaaS founder needs to master, explained clearly: recurring revenue, retention, acquisition, product and finance.
Recurring revenue and billing
How to measure and break down the revenue that recurs every month in your SaaS.
MRR
MRR (Monthly Recurring Revenue) is the monthly recurring revenue of a SaaS: the sum of all active subscriptions normalized to a month. It is the core metric of a subscription business because it shows, predictably, how much the company earns on a recurring basis each month, without counting one-off charges.
ARR
ARR (Annual Recurring Revenue) is the annual recurring revenue of a SaaS: MRR multiplied by 12. It represents how much the company earns on a recurring basis over a year, counting only active subscriptions, with no one-off charges. It is the metric of choice for companies selling annual contracts and the standard language of investors.
MRR Movements
MRR movements are the breakdown of the monthly change in MRR into its causes: new, expansion, contraction, churn and reactivation MRR. Instead of watching only the final number, you separate every dollar that came in and every dollar that left, and see why recurring revenue grew, stalled or fell. The sum of all movements is the net new MRR for the period.
Committed MRR (CMRR)
Committed MRR (CMRR) is the committed monthly recurring revenue of a SaaS: it starts from current MRR, adds the contracts already signed that are still due to activate, and subtracts the losses that are already certain, such as cancellations customers have already announced. It is a more realistic view of future recurring revenue than the MRR of the current month, because it factors in what is already closed but not yet reflected in the current number.
Run rate
Run rate is annualized revenue projected from a recent period, for example one month of MRR multiplied by 12 or a quarter of revenue multiplied by 4. It extrapolates the current pace of the business as if it would stay constant for a year. It is useful for a quick read of scale, but dangerous when the period used is not representative.
ARPU
ARPU (Average Revenue Per User) is the average recurring revenue per user of a SaaS: recurring revenue divided by the number of active users. Unlike ARPA, which divides by account, ARPU looks at the person, which makes sense in products priced per seat. It is a measure of how much each user is worth, on average, each month.
ARPA
ARPA (Average Revenue Per Account) is a SaaS recurring revenue divided by the number of active accounts. It shows how much each account generates, on average, per month or year. It is the metric that reveals the typical value of a customer and one of the main levers for growing revenue without relying only on new sales.
GMV
GMV (Gross Merchandise Value) is the total value of the transactions flowing through a platform or marketplace in a period. It is not the company revenue: revenue is the take rate charged on that volume. It is the scale metric of marketplaces and transactional SaaS, showing the size of the flow the business moves.
Gross vs net revenue
Gross revenue is the total billed in a period, before any deduction; net revenue is what remains after discounts, refunds, gateway fees and taxes. Gross shows the size of billing, while net reveals the real revenue the company keeps and that funds its margin. In a SaaS, separating the two avoids overstating growth and distorting revenue recognition.
Non-recurring revenue
Non-recurring revenue is the revenue from one-off, non-repeatable items of a SaaS, such as setup, implementation, professional services and training. It stays out of MRR and ARR because it does not renew: it inflates total billing, but not recurring revenue. That is why it should be measured and recorded separately from subscriptions.
Retention and churn
How much of your customer base and revenue you keep over time.
Churn
Churn is the loss of customers or revenue in a period. In a SaaS, it measures how many customers cancel (customer churn) or how much recurring revenue disappears (revenue churn). It is the metric that reveals whether growth is sustainable: the higher the churn, the more new sales you need just to avoid shrinking.
Net Revenue Retention (NRR)
Net Revenue Retention (NRR) measures how much of the recurring revenue from your current base you keep over time, already accounting for upgrades and expansion, minus downgrades and cancellations. Above 100% it means the base grows on its own, even without new customers.
Gross Revenue Retention (GRR)
Gross Revenue Retention (GRR) measures how much of the recurring revenue from your current base you keep over time counting only the losses, contraction and cancellations, and ignoring any expansion. That is why it never goes above 100%: it shows the pure leakage of the base.
Acquisition and unit economics
The cost of winning customers and the value they generate over the relationship.
CAC
CAC (Customer Acquisition Cost) is how much, on average, you spend to win a new customer. Add up everything invested in marketing and sales over a period and divide by the number of new customers who came in during that period. It is the metric that tells you whether your growth is economically healthy.
LTV / CLV
LTV (Lifetime Value), also called CLV or CLTV, is the total value a customer generates while they stay in your base. In a simple form, it is the recurring average revenue times margin times the customer lifetime. It is the metric that shows how much it is worth investing to win and keep each customer.
CAC payback
CAC payback is the time, in months, a customer takes to return the CAC in recurring margin. Divide the CAC by the monthly gross margin each customer generates (recurring revenue per customer times gross margin). It is the metric that shows how fast the acquisition investment comes back to cash.
Growth and efficiency
How fast the SaaS grows and how much capital that growth consumes.
Growth rate
Growth rate measures how fast a SaaS revenue (or customer base) moves between two periods, expressed as a percentage. It can be monthly (MoM), yearly (YoY) or quarterly, and the formula is always the change divided by the starting value. The YoY view smooths seasonality, while compound MoM reveals whether the business is accelerating or slowing down.
CAGR
CAGR (Compound Annual Growth Rate) is the compounded annual growth rate: the constant average rate that, applied year after year on a compound basis, takes a value from its starting point to its ending point over N years. The formula is (ending value ÷ starting value) to the power of (1/N), minus 1. It condenses several years of uneven growth into a single, comparable annual rate.
Rule of 40
The Rule of 40 is a health check for SaaS companies that adds the revenue growth rate to the profit margin: the result should be 40% or higher. It balances two goals that usually compete, growing fast and turning a profit, into a single number. Above 40 the business combines growth and profitability sustainably; below it, a warning light comes on.
SaaS quick ratio
The SaaS quick ratio is a growth-efficiency measure: it divides recurring revenue gained (new plus expansion) by recurring revenue lost (churn plus contraction) over the same period. A result above 4 signals efficient, healthy growth; near 1, the company gains about as much as it loses. Despite the name, it has nothing to do with the accounting quick ratio of liquidity.
Subscription, pricing and billing
Pricing models, plans and the mechanics of recurring billing.
