SaaS glossary 36+ business model terms every tech professional should know SaaS companies have their own vocabulary — ARR, churn, CAC, net revenue retention, expansion revenue. Master these terms to understand how tech businesses work and talk about them fluently.
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Revenue Metrics Customer Metrics Growth Metrics Pricing and Packaging Operations and Finance Go-to-Market Revenue Metrics
MRR (Monthly Recurring Revenue) Total subscription revenue per month. The primary health metric for SaaS businesses.
ARR (Annual Recurring Revenue) MRR multiplied by 12. Used for reporting, valuation, and goal-setting.
ACV (Annual Contract Value) The average annual revenue per contract. Useful for comparing deal sizes.
TCV (Total Contract Value) Total value of a contract over its full term, including one-time fees.
New MRR Revenue from new customers signed this month.
Expansion MRR Additional revenue from existing customers (upsells, seat additions, plan upgrades).
Churn MRR Revenue lost from cancelled or downgraded subscriptions this month.
Net New MRR New MRR + Expansion MRR - Churn MRR. The true growth signal. Customer Metrics
Customer Acquisition Cost (CAC) Total sales + marketing spend divided by new customers acquired.
Lifetime Value (LTV or CLV) Average revenue per customer divided by monthly churn rate.
LTV:CAC Ratio Should be 3:1 or higher for a healthy SaaS business. Below 1 means you lose money on every customer.
Payback Period How many months of revenue it takes to recover the CAC. Under 12 months is healthy.
Net Revenue Retention (NRR) Revenue retained from existing customers including expansion, minus churn. Above 100% means you grow without new customers.
Gross Revenue Retention (GRR) Revenue retained from existing customers, excluding expansion. Can only be 0-100%.
Churn Rate Percentage of customers or revenue lost per period. 5% monthly churn = ~46% per year.
Logo Churn vs Revenue Churn Logo churn = number of customers lost. Revenue churn = revenue lost. A large customer churning matters more than a small one. Growth Metrics
Month-over-Month (MoM) Growth Percentage change in MRR from one month to the next.
Year-over-Year (YoY) Growth Percentage change vs the same period last year.
Rule of 40 Growth rate + profit margin should exceed 40% for a healthy SaaS company.
Viral Coefficient (K) Average number of new users each existing user brings in. K > 1 = viral growth.
Product-Qualified Lead (PQL) A user who has experienced value in the product and is likely to convert to paid. Pricing and Packaging
Freemium Free tier with limited features, paid tier with more. Conversion rate from free to paid is typically 2-5%.
Free Trial Full product access for a limited time (7, 14, or 30 days). Higher conversion than freemium.
Seat-based pricing Price per user per month. Common for collaboration tools.
Usage-based pricing Price based on consumption (API calls, records processed, storage used). Aligns cost with value.
Tiered pricing Multiple plan levels (Starter, Pro, Enterprise) with different feature sets. Operations and Finance
Gross Margin Revenue minus cost of goods sold (hosting, support, payment processing). Healthy SaaS: 70-80%+.
Burn Rate How much cash the company is spending per month.
Runway How many months of cash remain at the current burn rate.
Cash Flow Positive Revenue exceeds expenses — the company generates more cash than it spends.
ARR per FTE Annual recurring revenue divided by number of full-time employees. Measures efficiency. Go-to-Market
Product-Led Growth (PLG) Users discover, try, and buy the product themselves — no sales call required. Opposite of Sales-Led Growth.
Sales-Led Growth (SLG) Dedicated sales team closes deals. Common for high-ACV enterprise products.
ICP (Ideal Customer Profile) The specific type of company most likely to buy and get value from your product.
Persona A representative individual within the ICP (e.g., VP of Operations at a 200-person manufacturing company).
Sales Cycle Time from first contact to signed contract. PLG: minutes. Enterprise SLG: 3-18 months. Keep learning See more product guides You know the vocabulary. Now explore structured learning paths that show you how SaaS businesses operate from the inside.
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