Looking to get a grip on all the phrases and buzzwords permeating the SaaS industry? Look no further, since we’ve got you covered with this brief beginner’s guide!

1. ARR (Annual Recurring Revenue)

As the name implies, this simply refers to the total amount of money a SaaS company expects to receive from its customers every year in the form of subscription fees.

Example: 100 customers paying $99 / month each means ARR = $99 x 100 = $9900.

2. MRR (Monthly Recurring Revenue)

The amount of money the SaaS company is expected to generate from its active subscriptions on a monthly basis. This basically comes down to ARR / 12.

Example: The MRR of the example above would be $9900 / 12 = $825.

3. Churn Rate

Butter is not the only thing that can be churned, and this refers to the percentage of customers who cancel their subscriptions within a given period. A high churn rate probably means there’s nothing wrong with your marketing and sales, but the SaaS product itself or the onboarding process are lacking in some aspects.

How to calculate: (number of cancellations) / (total number of customers).

4. LTV (Lifetime Value)

The total revenue a customer is expected to generate for as long as they remain a customer. An important metric that can be used to evaluate how much money it’s worth spending on customer retention strategies.

How to calculate: (average monthly customer revenue) x (average customer lifetime).

5. CAC (Customer Acquisition Cost)

Measures all the costs of acquiring a new customer, including things like marketing and sales-related expenses. Lowering the CAC (and increasing the LTV) is a prime goal among most SaaS companies.

How to calculate: (marketing + sales cost) / (number of new customers).

6. Onboarding

This refers to the process of educating new customers on how to effectively use your product or service. This can include everything from the creation of tutorials and demos to live training sessions.

7. Upselling / Cross-Selling

Upselling refers to encouraging current customers to upgrade to a higher-priced plan or add premium features. Cross-selling is the promotion of complementary products / services to existing customers.

8. API (Application Programming Interface)

An interface for a software system that enables other systems to access its data in a safe and efficient manner. This can allow for integration between SaaS platforms and third-party tools.

9. Freemium

A pricing model where the basic version of the software is offered for free in the hope that users will eventually want to upgrade to a paid version with more advanced features or make one-off purchases.

10. Product-Market Fit

When a product, SaaS or otherwise, effectively meets the needs of a specific market. This can lead to a healthy demand and long-term, sustainable growth, even if it will also probably encourage a slew of copycats.

Conclusion

Without at least a basic understanding of the many terms and abbreviations in the SaaS industry, navigating it in a sensible way becomes near impossible. This list has hopefully been of some help in this regard, equipping you with some of the most common yet important words when it comes to everything SaaS.